In Williams v. Homestake Mortgage Company, 968 F.2d 1137 (11th Cir.

1992) the
Eleventh Circuit recognized that TILA reverses the common-law rescission process-
placing the burden of first action on the creditor, not the consumer, which puts the
consumer in a stronger bargaining position than under common law. [Williams, 968
F.2d at 1140 (unlike common law rescission, the consumer need only notify the
creditor of his or her intent to rescind. "The agreement is then automatically
rescinded, and the creditor must, ordinarily, tender first." [Emphasis added.]). See
also Family Financial Services v. Spencer, 677 A.2d 479 (Conn. App. 1996)]

Accordingly, “The courts, at any time during the rescission process, may impose
equitable conditions to ensure that the consumer meets its obligations after the
creditor has performed his obligations as required under the act.” S. Rep. No. 368,
96th Cong., 2d Sess. at 29, reprinted in 1980 U.S.C.C.A.N. 236, 265.

Also see Willis v. Friedman, Clearinghouse No. 54, 564 (Md. Ct. Spec. App. May 2,
2002)(“[o]nce the right to rescind is exercised, the security interest in the debtor’s
property becomes void ab initio”) The promissory note is also voided, since it is
part of the same “transaction.” Arnold v. W.D.L. Investments, Inc., 703 F.2d 848,
849 (5th Cir. 1983); Elsner v. Albrecht, 185 Mich. App. 72, 460 N.W.2d 232 (1990)

It is clear from the statutory language that the Court’s modification authority
extends to the “procedures” specified in 15 USC § 1635(b). The voiding of the
security interest is not a “procedure.” Instead, it is expressed in 15 USC § 1635(b)
as a consequence of an action that has already been taken

The Williams court further recognized the importance of making rescission a

"painless remedy" for the consumer ("placing all burdens on the creditor") in acting
"as an important enforcement tool, insuring creditor compliance with TILA's
disclosure requirements." [Williams, 968 F.2d at 1140.]

You can argue that in the extended right context, achieving the status quo ante
must take a secondary role to the enforcement role. By definition, the creditor has
"unclean hands" (a "traditional equitable factor") since the dispute arises by virtue
of a TILA violation; especially since the triggering violations are, by statutory
definition, material ones. Courts have also recognized that it is important that the
integrity and accuracy of the notice of right to cancel, a violation which triggers the
continuing right, be protected so as not to undermine the consumer's rights.
Therefore the creditor should start out with one equitable strike against it.

The Williams decision does recognize that Regulation Z allows courts to modify
only step 2 (creditor's duty to return of money or property and reflect termination
of security interest) and step 3 (consumer's tender). It also cites with approval one
commentator's statement that "[i]t is clear there is no such thing as conditional
rescission." [Id. at 1142, citing Daniel Morgan, Rescission Under the Simplification
Act: What’s New (And Not So New) for Creditors, 7 Okla. City U.L. Rev. 355 (1982).
See also Family Financial Services v. Spencer, 677 A.2d 479 (Conn. App. 1996)
(rejecting creditor's argument that effective rescission was conditioned upon
consumer's tender; court held that creditor's failure to respond to rescission notice
nullified debtor's duty to tender]
But, even while admitting that the consumer's reading of the law that the court's
modification authority did not extend to the automatic voiding was "technically
correct," the Williams court nonetheless states that it is not a "realistic recognition
of the full scope of the statutory scheme." [Williams, 968 F.2d at 1141]

The ultimate holding is that "a court may impose conditions that run with the
voiding of a creditor's security interest upon terms that would be equitable and just
to the parties in view of all surrounding circumstances." [Id. at 1142]

In Williams, the court remanded the case to the lower court for determination as to
the propriety of conditioning the voiding of the security interest. (The creditor had
not advanced any arguments as to why equity should warrant any modification, as
it had argued rather that conditional rescission was mandatory.) See also FDIC v.
Hughes Dev. Co., 684 F. Supp. 616 (D. Minn. 1988) (though phrased as a conditional
rescission, the specific relief ordered was simply an adjustment of step 2,
permitting the creditor to file the release of the security interest after payment of
tender; the debtors were also given a year to make tender)

These cases suggest that the trial court might consider requiring the debtor to
execute a substitute security instrument. Arguably the way to reconcile the
inconsistencies in the Williams case is to say that both the original note and
security agreement are void as soon as the consumer sends a valid rescission
notice, but that the court may order a new security interest solely on the consumer's
post-rescission tender obligation, when the creditor proves that equities warrant a
modification of the normal rescission process. The substitute security instrument
may take into account the "circumstances and changed status of the parties."
Williams v. Homestake Mortgage Co., 968 F.2d 1137 n.9 (11th Cir. 1992)]

Despite the rhetoric of conditional rescission, the court in: In re Lynch, 170 B.R. 26
(Bankr. D.N.H. 1994) essentially did this, granting a "continuing" security interest
but only on the amount remaining after deducting interest, fees, and charges, and
allowing recoupment of statutory damages.

Furthermore, a consumer who "is determined to have a right of rescission" can

claim reasonable attorney fees; 15 U.S.C. § 1640(a)(3). This would presumably be
the case even if court enforcement of the rescission remedy were made conditional
(and perhaps even if the conditions were not met).

A creditor, on the other hand, would then argue that a court's conditioning of
rescission preserves the creditor's ability to seek attorney fees under a mortgage
provision allowing reimbursement for any fees incurred in defending the creditor's
interest in the property. The borrower could counter argue as follows: (1) the
voiding of the security interest can be conditioned under Williams but all other
aspects of the security agreement, including an attorney fees clause, are
unconditionally and finally voided upon the mailing of a timely notice of rescission;
(2) even if a court's conditioning of rescission tentatively preserves the creditor's
attorney fees clause, the clause cannot be enforced unless the consumer ultimately
fails to meet the conditions (which presumably can be later altered to
accommodate any unexpected financial hardship that the consumer might face).
Yamamoto's more extreme holding is its approval of requiring tender as a
preliminary matter and denying rescission on summary judgment. No other court
has required borrowers to tender as a pretrial matter, prior to adjudicating the
validity of rescission. [See, e.g., Semar v. Platte Valley Federal Sav. & Loan Ass'n,
791 F.2d 699 (9th Cir. 1986); Brown v. Nat’l Permanent Sav. & Loan, 683 F.2d 444
(D.C. Cir. 1982); Rudisell v. Fifth Third Bank, 622 F.2d 243 (6th Cir. 1980); LaGrone v.
Johnson, 534 F.2d 1360 (9th Cir. 1976); Powers v. Sims, 542 F.2d 1216 (4th Cir. 1976)
(remanding case with instructions to condition rescission upon tender of net
proceeds where debtors initially took position that they would only tender part of
net proceeds); Ljepava v. M.L.S.C. Properties, Inc., 511 F.2d 935 (9th Cir. 1975);
Palmer v. Wilson, 502 F.2d 860 (9th Cir. 1974); Velazquez v. Homeamerican Credit,
Inc., 254 F. Supp. 2d 1043 (N.D. III. 2003); Quenzer v. Advanta Mortg. Corp., 288
B.R. 884 (D. Kan. 2003); New Maine Nat'l Bank v. Gendron, 780 F. Supp. 52, 57 (D.
Me. 1991); Mayfield v. Vanguard Sav. & Loan, 710 F. Supp. 143 (E.D. Pa. 1989);
FDIC v. Hughes Dev. Co., 684 F. Supp. 616 (D. Minn. 1988), aff'd, 938 F.2d 889 (8th
Cir. 1991)]

In Rudisell v. Fifth Third Bank, 622 F.2d 243, 254 (6th Cir. 1980), for example, the
Sixth Circuit concluded "[s]ince Congress clearly intended to give a right to rescind
to persons in appellants' situation, this Court feels it must grant them that right."
Only then did the court condition rescission upon the consumer's tender of the
reasonable value of the aluminum siding. Similarly, in FDIC v. Hughes Dev. CO., 684
F. Supp. 616(D. Minn. 1988), aff'd, 938 F.2d 889 (8th Cir. 1991), the court first
determined that the rescission claim was valid, and directed the tender of net
principal within one year, followed by release of the security interest.

The Ninth Circuit should have required the trial court to determine whether
rescission was justified, if it was, the tender amount would be the principal minus
finance charges and closing costs. Even assuming that the statute allows
conditional rescission, the consumer is absolutely entitled to a reduction in the lien
to reflect the reduced tender amount. According to the Ninth Circuit, the consumer
did not dispute the tender amount; did not ask the trial court for extra time to pay
the tender amount; did not propose any tender options such as refinancing or sale
of the property, and indicated no ability to pay any tender amount.

Finally, their citation of 15 U.S.C. § 1640(c) is misapplied and falls extensively short
so as to undermine the actual interpretation. TILA’s “bona fide error” defense
provides that a creditor or assignee will not be held liable where it “shows by a
preponderance of evidence that the violation was not intentional and resulted from
a bona fide error notwithstanding the maintenance of procedures reasonably
adapted to avoid any such error.” See Warren v. Darnell, 164 Ill. App. 3d 273, 115
Ill. Dec. 225, 517 N.E.2d 636 (1987); Semar v. Platte Valley Fed. Sav. & Loan Ass’n,
791 F.2d 699 (9th Cir.) TILA explicitly states that the creditor has the burden of
proving the defense and has the burden of establishing all three necessary
elements of the bona fide error defense. See e.g., Pedro v. Pacific Plan of California,
393 F. Supp. 315 (N.D. Cal. 1975); Underwood, In re, 66 B.R. 656 (Bankr. W.D. Va.
1986); Ellis v. Hensley, 1979 WL 52452 (Ohio Ct. App. Aug. 16, 1979)

Once a creditor has demonstrated that the error was unintentional and falls within
the statutory category of bona fide errors, they must then show that it maintained
adequate procedures to avoid making such errors. To meet this burden of proof,
they must offer specific evidence of adequate procedures; blanket allegations that
such procedures existed are insufficient. See e.g., Underwood, In re, 66 B.R. 656
(Bankr. W.D. Va. 1986) Normally creditors fail to meet this burden because it has
no evidence or not enough evidence, or no procedures in fact existed to plead. See
Demando v. Capital One Financial Corp., 206 F.3d 1300 (9th Cir. 2000)