In Avelo Mortg., LLC v. Jeffery, A-0765-08T1 (N.J. Super. Ct. App. Div. July 15, 2010) the Borrowers defended a foreclosure action by arguing that the failure of the lender to comply with their notice of rescission entitles them to a dismissal of the foreclosure complaint because the security interest is rendered void pursuant to § 1635 of TILA. The judge agreed, dismissed the foreclosure complaint and voided the security interest. However, the judge ruled that the lender could proceed on the note, with all defenses available to the Borrowers. The appellate court reversed that ruling finding that this was an inappropriate remedy. The Borrowers imperfectly rescinded the mortgage because they did not return the balance they received to the lender nor directed the return of the proceeds to the prior lender who was paid off with the Plaintiff’s funds. Consequently, rescission was not the equitable remedy that the court should have applied. Extending the well recognized rule that courts have the equitable power to modify the statutory rescission process, the appellate court said the trial court instead should have considered judicially modifying the mortgage. The mortgage and note should be modified or reformed with the equitable goal of restoring the parties to the status quo.
Author
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Solomon has nearly two decades of experience representing financial institutions, real estate investors and privately owned business entities. Solomon concentrates his practice in the areas of banking, consumer financial services, real estate, business law and related litigation and appellate practice.
