This is the final post in the series on the Truth in Lending right to rescission. Visit National Loan Auditors for more information on forensic loan audits.
Effects of Rescission on Creditor’s Right to Foreclose
Once notice of rescission is given, the lien on the consumer’s home becomes void, taking away the creditor’s foreclosure remedy, and its leverage. The homeowner is entitled to a return, or a credit against the balance of the debt, of all finance, interest, and other charges, such as closing costs and broker fees. Semar v. Platte Valley Federal Savings & Loan Ass’n, 791 F.2d 699 (9th Cir. 1986). This can dramatically reduce the consumer’s debt if the interest rate or charges were high or substantial payments had been made. In certain circumstances the consumer may even have the right to retain the proceeds or goods purchased.
The consumer may bring suit in federal district court, bankruptcy court or state court to enforce these rights. Federal courts can enjoin state non-judicial foreclosure proceedings during the pendency of a TIL rescission claim, and may, depending on the stage of the foreclosure, be able to enjoin judicial foreclosure proceedings as well. Rescission can also be raised in state court in response to the foreclosure, as rescission is a complete defense to foreclosure on the property. Albano v. Norwest Fin. Haw., Inc., 244 F.3d 1061 (9th Cir. 2001).
In addition, the creditor’s failure to perform it’s TIL rescission obligations may be a separate TIL violation entitling the consumer to actual and statutory damages and attorney fees. Aquino v. Pub. Fin. Consumer Discount Co., 606 F. Supp. 504 (E.D.Pa. 1985). If the loan if covered by the Home Ownership and Equity Protection ACT (HOEPA), the consumer is entitled to not only statutory damages and actual damages, but also special enhanced damages in the amount of all finance charges and fees paid by the consumer. 15 U.S.C. § 1640(a)(4). This award can make a substantial reduction in the balance. The consumer may also recover damages for other TIL violations even when the transaction is canceled. The one-year statute of limitations for TIL damage claims runs from the date of the violation in the case of violations of the creditor’s rescission obligations, but it runs from the date of consummation of the transaction for disclosure violations.
