State courts stubbornly refuse to abide by explicit ruling by U.S. Supreme Court in mortgage law, trampling borrower’s who did everything right
Woodland, WA -- In a ruling by the Washington State Court of Appeals on May 10, 2016, borrowers Todd and Theresa Baker were told that even though they were never in default on their mortgage, and did nothing wrong, their home of 22 years would be sold at auction because the court’s erroneous ruling was in the past, so it would stand. The logic being that the court cannot risk causing disruption to the new buyers of the Baker’s home (who purchased the house at auction with full awareness of the pending litigation-lis pendens) because that “would be unfair”.
The lender, who the Baker’s maintain had no legal right to their home due to a lawfully rescinded promissory note, convinced a trial court in 2014 that the Baker’s had incorrectly rescinded their predatory mortgage (which was not in default) for violations of the Truth In Lending Act. Following the decision of the Clark County Superior Court ruling on summary judgement that there were procedural errors in the Baker’s 2009 TILA Rescission, the Baker’s home was put into foreclosure.
The appeals ruling: Download Denial-by-WCA
When borrowers sign on the dotted line for a new mortgage on their home, the United States Congress put in place laws that would serve to protect borrowers from unfair lending practices such as misstating fees and charges, or not clearly outlining the terms of a mortgage or providing required disclosures. This gave borrowers and lenders a level playing field and the reassurance that their transaction was protected by law to be as they were being told it was.
One of the more powerful laws is contained in the Truth In Lending Act: Mortgage Rescission ("TILA Rescission"). While most people can recall getting documents at a loan closing saying that they have a right to cancel the transaction within three days of signing if they choose, what many people do not know, is that this same law also states that in certain transactions (like mortgage refinances) your right to rescind is extended to three years if there are certain material defects and/or omissions. It is the extended three year right of rescission that was recently addressed and clarified by the United States Supreme Court in January of 2015 because of a widely occurring problem of lower courts misinterpreting the law, making it nearly impossible to use by a borrower.
It’s a harsh remedy for lenders
Lenders hate TILA Rescission (15 U.S. Code § 1635) It is a sort of “nuclear option” when a borrower discovers certain problems in their loan documents, the borrower can simply cancel their mortgage. Congress intended for the remedy to be harsh, as a deterrent to lenders because it is so easy for a lender to hide things in loan documents that are unfair or illegal. TILA Rescission was designed to be done non-judicially, or OUTSIDE of a courtroom. Unfortunately, nothing is more judicial than TILA Rescission.
If a borrower has the elements required to rescind (and the Baker’s did), there are simply four steps, they go like this:
- Borrower simply sends the lender a letter stating that they are rescinding their mortgage. (the Baker’s did this) The promissory note becomes VOID upon the sending of letter ab initio or "from the beginning".
- Lender then has 20 days to remove their lien from the title of the borrower's home and cancel the deed of trust, and inform the borrower that this has been done.
- The lender must refund to the borrower all funds exchanged in the transaction, including all interest paid to date and fees paid in connection with the loan. (the Baker’s lender DID NOT do this)
- Only AFTER the lender has completed the above steps does the borrower then tender’s back to the lender all proceeds received from the lender. There is a logical reason that these steps occur in this order. The borrower cannot access financing to tender the proceeds of the loan if there is still a lien on it.
If the lender disagrees with the borrower's rescission claim, they have the right to file a motion for declaratory relief within 20 days to ask the court to examine the borrower's claim. The court can void the rescission claim if it is without merit.
It is this extended right of rescission that the Baker’s turned to when they discovered egregious errors on their mortgage documents that caused them to be deceived on their own mortgage, and to have thousands of dollars taken. After trying for months to get the lender to fix the errors on their documents to no avail, they made the difficult decision to rescind their mortgage (which was not in default) in May of 2009. They prepared for the action of rescission carefully, consulting attorneys and local experts. They got approved for a new mortgage refinance to have ready, because they knew would need to tender back to the bank all funds they had received as part of their obligation in the rescission. What they didn’t prepare for was that the lender would not respond legally to their rescission. Years later, after much collaboration with hundreds of people nationwide, they learned that ignoring a borrower’s rescission was not only common, it was standard practice by lenders. Lenders are rewarded for not responding to TILA Rescissions as the Baker’s case bears out in textbook fashion.
Reality: TILA Rescission still is not what it was intended to be by Congress-Even post-Jesinoski
What followed their rescission is a long story, but it can be summed up easily: The Baker’s got a good attorney, spent lots of money, and proceeded to trudge through seven years of misery trying to access justice on what was actually a very simple case. What started out as trying to get a fraudulent, current mortgage straightened out has culminated in the Baker’s losing their home after 7 years of tortuous, expensive litigation. Their advice to anyone contemplating using TILA Rescission to hold the lender to their word? Don’t. It’s not worth it, and you will probably fail. Unless the courts start ruling according to the law, the remedy of TILA Rescission is NOT in fact available, they hold their case as an example of this. The courts will bend over backward to avoid ruling against the lender.
At last! Exonerated by the US Supreme Court
Less than two years after the trial court erroneously ruled that the Baker’s had improperly rescinded their mortgage, on January 23, 2015, with the Baker’s still in possession of their home and fighting to save it, there was a landmark unanimous ruling in the United States Supreme Court regarding the proper invocation of a TILA Mortgage Rescission in Jesinoski v. Bank of America. The ruling settled a circuit court split that was creating conflicting and erroneous rulings around the nation. Lower courts were ad-libbing all kinds caveats to the facially simple and direct remedy to a fraudulent or defective mortgage. The US Supreme Court, in its ruling, settled all doubts about the act of invoking a TILA Rescission, and stated that there is no change in this law, it is now as it has always been, and no court has the discretion to change it. Unfortunately for the Baker's and most any other borrower who relied on this remedy, the Supremes did NOT address in detail the EFFECT of TILA Rescission. Though it is spelled out in unambiguous language in USC1635(b), courts are still making up their own rules about it. Washington State courts especially.
The Baker’s rushed to bring this great news to their attorney, as the Jesinoski case upon which the Supreme Court ruled, was essentially identical to their own. The very succinct ruling by Justice Antonin Scalia was written in terse language, and stated among other things, that the law was clear on it’s face, and meant what it said. No court had the discretion to interpret it in any other way. Further, on the specific question, as in the Baker’s case, of whether or not a borrower had to also file a lawsuit within the 3 year statute to “validate” the rescission, the US Supreme Court firmly denied that this was required, and with regard to cases in which this was ruled in the past, Justice Scalia stated, “that was error.”
The ruling, in clear language, exonerated the Baker’s and proved without any doubt that they had rescinded exactly as they should have, meaning that their promissory note had become void on May 28, 2009, as the law said. It follows that all transactions and court rulings that referenced the voided promissory note were void by operation of law. Finally, after tens of thousands of dollars in legal costs, unspeakable personal suffering and humiliation they would be able to start to recover.
Bakers file a Rule 60(b) motion from relief from judgement
Immediately, the Baker’s attorney filed a rule 60(b) motion for relief from judgement, asking the trial court to reverse their erroneous ruling, and allow the Baker’s to litigate the issues surrounding their rescission for the very first time. In circumstances where justice was not served by a ruling, a rule 60(b) motion gives the court the authority to overturn their ruling at their discretion in the interest of equity. If a party demonstrates that a great wrong has been committed then a court abuses its discretion if it does not reverse.
The Baker’s were relieved that finally a court might hear the arguments on what had happened and could decide who really was the victim in their case. Up until now, the Baker’s had been denied even a trial because of the trial court’s broad rejection of all of their claims of injustice in a quick summary judgement ruling back in 2014, awarding thousands of dollars in attorney fees to the lender. If the trial court reversed, they could finally have their day in court.
The trial court's ruling
On March 9, 2015 the trial court, in a stark, one-sentence ruling, decided against the Baker’s stating that she would not reverse her ruling because “a change in the law is not an extraordinary circumstance” even though the Supreme Court was explicit that this was not a change in the law. The Baker’s immediately filed an appeal alleging the trial court had abused her discretion, and that there was no change in the law, this was clearly articulated by Justice Scalia in the US Supreme Court's unanimous ruling in “Jesinoski”. It was the court that erred, not the Baker’s.
Foreclosure trustee rushes to auction the Baker’s home of 22 years
Soon after the trial court ruled against the Baker’s, the foreclosing trustee, Northwest Trustee Services, rushed to auction their home, even though their case was on appeal. Northwest Trustee Services, though required by law to be a neutral referee in foreclosure actions, had been in a contentious battle with the Baker’s for almost 7 years now. The Baker’s filed a “lis pendens” (notice of pending litigation) against the title of their home to announce to any potential buyer that the home was in litigation, warning them that the title would be affected. The Baker’s were convinced that, by rushing to auction their home before the appeals court heard the case, the trustee was attempting to manipulate the appeals court by creating an obstacle against ruling in their favor. Courts do not like their rulings to harm innocent third parties, like buyers of a home at a foreclosure auction.
Baker’s lose on appeal
On May 10, 2016 the appellate court ruled against the Baker’s. The appellate court was asked to decide whether the trial court had abused its discretion when it refused to concede it’s error in 2014 and relieve the Baker’s from judgement. The two weightier issues in this ruling were regarding “finality” and whether reversing would have “prospective application”. “Finality” addresses parties’ reliance on a court's ruling being final. To decide whether finality is affected, it is argued whether any parties will be unfairly injured by the court reversing themselves. The Baker’s argued that since the trial court was deciding on an issue that if reversed, would affect no one, finality was not affected. At the time the trial court heard their case, the Baker’s were still in possession of their home (it had not been sold to an innocent third party) further, the lender was not even entitled to the home by operation of law, according to Justice Scalia in the US Supreme Court ruling. The Baker’s were merely asking for the opportunity to go to court to litigate the issues.
The law also says that if sustaining the erroneous judgement had “prospective application” then the court should reverse. Carrying out the result of the erroneous ruling even though it was no longer equitable is “prospective application”. The Baker’s argued that there was prospective application in that at the time of the trial court’s ruling the home was not scheduled to be sold, and losing their home was the logical end consequence of the erroneous decision. When an appeals court analyzes whether or not a trial court abused their discretion, they are to examine the facts that were presented to the lower court. It would be counter-intuitive to consider facts that occurred AFTER the trial court ruled. Nonetheless, this is what happened.
The appeals court said that finality is affected and there was no prospective application because the house had since been sold, and that a third party would be affected and they would not disturb that. The Baker’s were stunned that the tactics of the foreclosing trustee of selling their home after the trial court had ruled and during their appeal effectively caused them to lose their appeal case. They didn’t lose on the merits of their case, but on the manufactured circumstances of a foreclosure trustee who is legally required to conduct a neutral process of divesting someone of their home when they defaulted on their obligations to their lender. The Baker’s never defaulted on their obligations at any time.
Justice or "procedural game"?
When looking for a simple explanation for this loss, it can be summed up like this: There were procedural errors that caused the court to divert from the proper just outcome for the Bakers. That means mistakes were made the way it was litigated. The Baker’s rescinded their mortgage properly, there was never any dispute about that. When a mortgage is properly rescinded, the law says that the note becomes void immediately. Nothing can "unvoid" it, not even a confused trial court judge. In this case, there was no default, there was no delinquency, there was simply a trial court judge that decided that it would be better to sustain her erroneous decision and resurrect a voided promissory note, than to concede that a gross injustice had occurred to this family who could not possibly have access to their right of rescission in the face of a ruling like this. This is the essence of the Jesinoski ruling that was left out. Many experts have said that this will be the next phase of Jesinoski: Establishing the EFFECT of a TILA Rescission. Although the law is clear, the Baker's case exemplifies the reason this needs to be ruled upon by SCOTUS. Void is not voidable. It's void.
Not only have the Baker’s lost their home, their self respect and 7 years of their lives, they have expended about $100,000 in legal fees and costs, lost most of their possessions and the appeals court even awarded the trustee and the lender their attorneys’ fees.
The Baker’s future
It is unclear what the future holds for the Baker’s. Their faith in the justice system, though always strong, has been deeply shaken. The costs of litigation are almost more than they can bear, and the personal cost on their lives and their health have been extreme. Yet, they cannot accept, in such a simple, straight-forward case as theirs, that the courts cannot identify unfairness at it’s most obvious. After all, that is the reason we have courts. Not to allow parties to prevail on some procedural technicality, but to serve justice. This is why judges are human beings.
The Baker’s will be continuing in their effort to access justice, because in the end, they hope that the truth of their case will be finally heard in a courtroom by a jury. They believe that allowing corruption to prevail will destroy our society, and every citizen should resist it to best of their ability. The alternative is unthinkable.
The Baker's respectfully ask you to share this information so that it might help others.
They would also like to thank the many, many people who have supported them through this horrific time in their lives and they thank God for their beautiful children and compassionate friends.
To the hardworking, skilled attorneys who believed in us and worked so hard and gave their advice, we are forever indebted.
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