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HSBC and customer’s right to recind

The following information pertains to the right to recind an agreement be= tween HSBC and a customer. It is quite lengthy, but very interesting. The information comes from the FTC and OCC, respectively, according to the submitter. Case law is included: =

I. TILA= & Res Judicata
(Analogous to Mr. Curtis xxxxxx , situation sin= ce he had never litigated fully or raised any TILA claims affirmatively or defens= ively) – A rescis= sion action may not be barred by prior or subsequent TILA litigation which did n= ot involve rescission (Smith v. Wells Fargo Credit Corp<= /span>., 713 F. Supp. 354 (D. Ariz. 1989) (state court action involving, inter alia = TIL disclosure violations did not bar a subsequent action based on rescission notice violations in conjunction with same transaction which were not alleged or litigated in prior action) (See also = In re Laubach, 77 B.R. 483 (B= ankr. E.D. Pa. 1987) (doctrine of merger bars raising state and federal law claims arising from a transaction on which a previous successful federal TILA acti= on was based; merger does not bar, however, rescission-based on the same transaction)).

The Truth-in-Lending law e= mpower Mr. Curtis xxxxxxx , to exercise his right in w= riting by notifying creditors of his cancellation by mail to rescind the mortgage = loan transactions per (Reg. Z §§ 226.15(a)(2), 226.23(a)(2), Official Staff Commentary § 226.23(a)(2)-1) and 15 U.S.C. § 1635(b). =

2. Secu= rity Interest is Void
The statute and regulation specify that the securi= ty interest, promissory note or lien arising by operation of law on the proper= ty becomes automatically void. (= 15 U.S.C. § 1635(b); Reg. Z §§ 226.15(d)(1), 226.23(d)(1). As noted= by the Official Staff Commentary, the creditor’s interest in the propert= y is “automatic= ally negated regardless of its status and whether or not it was recorded or perfected.” (Official Staff Commentary §§ 226.15(d)(1)-1, 226.23(d)(1)-1.). Also, the security interest is void and of no legal effect irrespective of whether the creditor makes any affirmative response to the notice. Also, strict construction of Regul= ation Z would dictate that the voiding be considered absolute and not subject to judicial modification.= This requires HSBC Mortgage Services to submit canceling documents creating the security interest and filing release or termination statements in the public record. (Official Staff Commentary §§ 226.15(d)(2)-3, 226.23(d)(2)-

3. Extended Right of Rescission
The statute and Regulation Z make it clear that, if Mr. Curtis xxxxxxx , has the ex= tended right and chooses to exercise it, the security interest and obligation to pay charges are <= span style=3D'font-family:Arial;color:red'>automatically voided<= span style=3D'font-family:Arial;color:red'>. (Cf. Semar v.= Platte Valley Fed. Sav. & Loan Ass’n, = 791 F.2d 699, 704-05 (9th Cir. 1986) (courts do not have equitable discretion to alter substantive provisions of TILA, so cases on equitable modification are irrelevant). The statute, section 1635(b) states: <= span style=3D'font-family:Arial;color:green'>“When an obligor exercises his right to cancel…, any security interest given by the obligor… becomes void upon such rescission”. Also, it is clear from the statuto= ry language that the court’s modification authority extends only to the procedures speci= fied by section 1625(b). =

The voiding of the security interest is n= ot a procedure, in= the sense of a step to be followed or an action to be taken. The statute makes = no distinction between the right to rescind in thre= e day or extended in three years for federal and four years under Mass. TILA, as neither cases nor statute give courts equitable discretion to alter TILA’s substantive provisions. <= span style=3D'font-family:Arial;color:red'>Since the rescission process was inte= nded to be self-enforcing, failure to comply with the rescission obligations subjects Hsbc Mortgage Services Inc. to potenti= al liability

Non-compliance is a violation of the act which gives rise to a claim for actual and statutory damages under 15 USC 1640. TIL rescission does not only cancel a security interest in the property but it = also cancels any liability for the Mr. Curtis xxxxxxxx , to pay finance and other charges, including accrued interest, points, broker fees, closing costs and that the lender must refund to Mr. Curtis xxxxxxxx , all finance charges and fees paid. = =

In case HSBC Mortgage Serv= ices Inc. do not resp= ond to this default letter, Mr. Curtis xxxxxxxx, has the option of enforcing the resci= ssion right in the federal, bankruptcy or state court (See S. Rep. No. 368, 96th Cong. 2 Sess. 28 at 32 reprinted in 1980 U.S.C.A.N. 236, 268 (“The bi= ll also makes explicit that a consumer may institute suit under section 130 [15 U.S.C., 1640] to enforce the right of rescission and recover costs and atto= rney fees”).

TIL rescission does = not only cancel a security interest in the property but it also cancels any liability for Mr. Curtis xxxxxxxx , to pay fina= nce and other charges, including accrued interest, points, broker fees, closing costs and the lender must refund to Mr. Curtis E Frazier , all finance char= ges and fees paid. Thus,HSBC Mortgage Services Inc. are obligated to return those charges to Mr. Curtis = xxxxxxxx , (Pulphus v. Su= llivan, 2003 WL 1964333, at *17 (N.D. Apr. 28, 2003) (citing lender’s duty to return consumer’s money as reason for allowing rescission of refinanc= ed loan); McIntosh v. Irwing Union Bank & Trus= t Co., 215 F.R.D. 26 (D. Mass. 2003) (citing borrower’s right to be reimburs= ed for prepayment penalty as reason for allowing rescission of paid-off loan).= =

4. Step One of Rescission

First, by operatio= n of law, the security interest and promissory note automatically becomes void a= nd the consumer is relieved of any obligation to pay any finance or other char= ges (15 USC 1635(b); Reg. Z-226.15(d)(1),226.23(d)(1). . See Official Staff Commentary § 226.23(d)(2)-1. (See Willis v. Friedman, Clearinghouse No. 54,564 (Md. Ct. Spec. App. May 2, 2002) (Once the right to rescind is exercise= d, the security interest in the Mr. Curtis E Frazier’s property becomes void= ab initio). Thus, the security interest is void and of no legal effect irrespective of whether the creditor makes any affirmative response to the notice. (See Family Financi= al Services v. Spencer, 677 A.2d 479 (Conn. App. 1996) (<= /span>all that is required is notification = of the intent to rescind, and the agreement is automatically rescinded).

It is clear from the statu= tory language that the court’s modification authority extends only to the procedures specified by section 1635(b). The voiding of the security intere= st is not a procedure, in the sense of a step to be followed or an action to be taken. The statu= te makes no distinction between the right to rescind in 3-day or extended as neither cases nor statute give courts equitable discretion to alter TILA’s substantive provisions. Also, after the security interest is voided, secured creditor becomes unsecured.

5. Step Two of = Rescission=

Second, since Mr. Curtis <= span class=3DSpellE>xxxxxxxxx has legally rescinded the loans transaction= , the mortgage holders (HSBC Mortgage Services Inc.) must return any money, including that which may have been pa= ssed on to a third party, such as a broker or an appraiser and to take any action necessary to reflect the termination of the security interest within 20 calendar days of receivi= ng the rescission notice which has expired. The creditor’s other task is= to take any necessary or appropriate action to reflect the fact that the secur= ity interest was automatically terminated by the rescission within 20 days of t= he creditor’s receipt of the rescission notice (15 USC 1635(b); Reg. Z-226.15(d)(2),226.23(d)(2).

6. Step Three of Rescission = =

Mr. Curtis xxxxxxx was prepared to discuss a tender obligation, should it arise, and satisfact= ory ways in which to meet this obligation. The termination of the security inte= rest is required before tendering and step 1 and 2 have to be respected by HSBC = Mortgage Services Inc.
XIV. Conclusion

When Mr. Curtis xxxxxxxx rescinds within the context of a bankruptcy, courts have held that the rescission effectively voids the security interes= t, rendering the debt, if any, unsecured (See Exhibit #6). (See in re Perkins,= 106 B.R. 863, 874 (Bankr. = E.D.Pa= . 1989); In re Brown, 134 B.R. 134 (Bankr. E.D.Pa= . 1991); In re Moore, 117 B.R. 135 (Bankr.E.D. Pa. 1990)).

Once the court finds= a violation such as not responding to the TILA rescission letter, no matter h= ow technical, it has no discretion with respect to liability (in re Wright, supra. At 708; In re Porter v. Mid-Penn Consumer Discount Co., 961 F,2d 1066, 1078 (3d. Cir. 1992); Smith v. Fidelity Consumer Discount Co., Supra. At 898. Any misgivings creditors may have abo= ut the technical nature of the requirements should be addressed to Congress or the Federal Reserve Board, not the courts.

Since HSBC Mortgage Servic= es Inc. have not cancelled the security interest and return all monies paid<= span style=3D'font-family:Arial;color:black'> by Mr. Curtis xxxxxxxx within the 20 days of receipt of the letter of rescission of April 4th, 200= 7, the lenders named above are responsible for actual and statutory damages pursuant to 15 U.S.C. § 1640(a).

HSBC Mortgage Services Inc= . are to take any necessary or appropriate action to reflect the fact that the security interest was automatically terminated by the rescission (15 USC 1635(b); Reg. Z-226.15(d)(2),226.23(d)(2). This requires canceling documents creating the security interest and filing rele= ase or termination statements in the public record of FREE and CLEAR TITLE to M= r. Curtis xxxxxxx .

If a lender fails to respond within twenty days to the notice of rescission, the ownership of the property vests in the borrowers and they are no longer
required to pay the loan. = See § 1635(b); Staley v. Americorp Credit Corp., 164 F. Supp. 2d 578, 584 (D. = Md. 2001); Gill = v. Mid-Penn Consumer Disc. Co., 671 F. Supp. 1021
(E.D. Pa. 1987).

7. Whe= re, as here, if, a Creditors does not respond to a properly served and ignores a duly issued T= ILA notice of rescission, an Entry of defa= ult, is the appropriate and, indeed, just and only recour= se. According to The Office of the Comptroller of the Currency, “a consumer’s right to resc= ind is not affected by the sequence of the rescission procedures or a court ord= er modifying those procedures in both open and closed-end credit (Comptroller of Currency, OCC Bull= etin 2004-19 (May 7, 2004)). Since the Creditors do not appe= ar disposed to follow and to abide by the rule of law of the Federal Truth-In-Lending Law, this Court has as the only avenue available to conclu= de this matter, the entry of default against Creditors for failure to comply by illegally proceeding with a foreclosure action despite having received the = TILA rescission notice that automatic= ally void the security interest as described in 15 USC 1635(b).

8. TILA Achieves its Remed= ial Goals by A System of Strict Liability To further= this congressional policy TILA achieves its remedial goals by a system of strict liability in favor of consumers when mandated disclosures have not been made. 15 U.S.C. §1640(a) (emphasis added). The standard applied is considered “strict liability in the s= ense that absolute compliance is required and even technical violations will form the basis for liability.” Sh= epeard v. Quality Siding & Window Factory, Inc., supra. = at 1299; In re McElvany, 9= 8 B.R. 237, 240 (Bankr. W.D. Pa. 1989). This means tha= t “technical or minor violations of TILA, o= r Reg. Z, as well as major violations impose liability on the creditor and entitle= the borrower to rescind [the loan].” Smith v. Wells Fargo Credit Corp., 713 F.Supp. 354, 355 (D.= Ariz. 1989); Jackson v. Grant, 890 F.2d. 118, 120 (9th Cir. 1989); Semar v. Platte Valley Fed. S &= L Assoc., supra. at 704. =

This rule is inviolate and= is followed by courts in all jurisdictio= ns. See, e.g., Smith v. Fidelity Cons= umer Discount Co., 989 F.2d 896, 898 (3rd Cir. 1990)(The federal Truth in Lending Act (TILA) achieves its remedial goals by a system of strict liability in favor of consume= rs when mandated disclosures have not been made); Lewis v. Dodge, 620 F.Supp. 135, 138 (D. Conn. 1985); In re Porter, 961 F.2d 1066 (3rd Cir. 1992); Rowland (John M., Carol= S.) v. Magna Millikin Bank of Decatur, N.A., 812 F.Supp. 875 (C.D. Ill. 1992) (”even technical violations will form the basis = for liability”); New Maine Nat. Bank v. Gendron, 780 F.Supp. 52 (D. Me. 1992); Dixon v. S & S Loan Service of Waycross, Inc., 754 F.Sup= p. 1567 (S.D. Ga. 1990); Woolfolk v. Van Ru<= /span> Credit Corp., 783 F.Supp. 724 (D. Conn. 1990) (same with Unfair Debt Collection Practices Act); Morris v. Lomas and Nettlet= on Co., 708 F.Supp. 119= 8 (D. Kan. 1989); Jenk= ins v. Landmark Mortg. Corp. of Virginia, 696 F.Supp. 1089 (W.D. Va. 1988); Laubach v. = Fidelity Consumer Discount Co., 686 F.Supp. 504 (E.D. Pa. 1988); Searles v. C= larion Mortg. Co., 1987 WL 61932 (E.D. P= a. 1987); “Liability will flow from even minute deviations from requirem= ents of the statute and Regulation Z.” Dixon v. S & S Loan Service of Waycross, Inc., 754 F.Supp. 1567, 1570 (S.D. G= a. 1990); Shroder v. Suburban Coastal Corp., supra= . at 1380; Charles v. Krauss Co., Ltd., 572 F.2d 5= 44 (5th Cir. 1978).Shroder v. Suburban Coastal Cor= p., 729 F.2d 1371, 1380 (11th Cir. 1984) ; Goldberg v. Delaware Olds, Inc., 670= F.Supp. 125 (D. Del. 1987); Curry v. Fidelity Consumer Discount Co., 656 F.= Supp. 1129 (E.D. Pa. 1987); Laubach v. Fidelity Consumer Discount Co., 1986 WL 4464 (E.D. Pa. 1986); In re Wright,= 133 B.R. 704 (E.D. Pa. 1991); Moore v. Mid-Penn Consumer Discount Co., 1991 WL 146241 (E.D. Pa. 1991); In re = Marshall, 121 B.R. 814 (Bankr.C.D. Ill. 1990); In re Steinbrecher, 110 B= .R. 155 (Bankr.E.D. Pa. 1990); Nichols v. Mid-Penn Consumer Discount Co., 1989 WL 46= 682 (E.D. Pa. 1989); In re McElvany, 98 B.R. 237 (<= span class=3DSpellE>Bankr.W.D. Pa. 1989= ); In re Johnson-Allen, 67 B.R. 968 (Bankr.E.D. <= st1:State w:st=3D"on">Pa. 1986); In re Cervantes, 67 B.R. 816 (Ba= nkr.E.D. Pa. 1986); In re McCausland, 63 B.R.= 665, 55 U.S.L.W. 2214, 1 UCC Rep.Serv.2d 1372 (Bankr.E.D. Pa. 1986); In re Perry, 59 B.R. 947 (Bankr.= E.D. Pa. 1= 986); In re Schultz, 58 B.R. 945 (Bankr,E.D= . Pa. 1986); Solis v. Fidelity Consumer Discount Co., 58 B.R. 983 (E.D. Pa. 1986).

Vio= lation of the rule of law, since neither you nor any of the defendants have Standi= ng to pursue foreclosure action because, once TILA notice of rescission is giv= en, the lien or security interest in plaintiff’s property becomes void ab initio, even if a court has not yet ruled on = the validity of the plaintiff’s rescission (Willis v. Friedman, Clearingh= ouse No. 54,564 (Md. Ct. Spec. App. May 2, 2002)). =