This is long post but it is worth your time to read.

I couldn't decide what forum to post this in somehow this seem to be the most appropriate.

On CB we talk a lot about FDCPA, FCRA and other consumer’s protection laws, but I didn’t find a lot of information regarding a consumer’s right to rescind their mortgage and this is something that can be done up to three year after you sign the paper work if there have been certain Federal laws were not followed. We are in the process of doing this. I wanted to share this because it is an extremely powerful tool when used correctly. This may be an option that some of you may want to explore especially if you have refinanced within the last 3 year or have purchased your home within the last year. TILA violations are extremely common, but not all violations are powerful enough to allow the mortgage rescinded. We are working with an attorney, but I knew we had TILA violations before we had our mortgage look at. Attorney’s fees are 100% recoverable from the defendant under the statue. This may also help some of you who are having trouble getting a current loan modification. These are the same laws that some of the loan mod mills use to negotiate your loan modification.

I am by no means an expert in this I am happy to help where I can. If you have refinanced within the last 3 year or have purchased your home within the last year and are have trouble with your mortgage get a copy of your mortgage to an attorney that deals with TILA violation/ Consumer Protection and keep reading.

I have read through the following laws until my head nearly exploded:

Truth in lending Act

Regulation Z of the truth in lending Act

RESPA

I didn’t write the explanation that follows but I have found it to be the best “quick” explanation for rescinding you mortgage due to TILA violation.

In recent months our country has seen a staggering increase in the number of defaults of residential mortgages, specifically those involving “sub-prime” borrowers and what I would like to call "predatory lending" practices. Thee defaults will continue to lead to foreclosures, short sales, subsequent property devaluation, and other related adverse circumstances. Many borrowers will end up in bankruptcy or credit counseling, often reaching out to attorneys for direction. Regardless of the attorney’s area of practice or background, a solid understanding of the remedies available to desperate homeowners is perhaps now more timely than ever. Arguably the most valuable remedy available exists in The Truth In Lending Act, promulgated by Regulation Z, specifically a borrowers right to rescind.

Most people are familiar with the “three-day right to cancel” period after signing a refinance loan secured by a principle dwelling. Lenders even provide documentation that clearly identifies the procedure for canceling the loan and the time in which it can be done. What the documentation fails to explain is that if any one of three key aspects of the loan package is not properly completed, the three day period is extended to three years.

Before explaining what these three defects are, it is helpful to first understand what canceling, or “rescinding” a loan really means. In a very general sense, to rescind is to “undo”. Basically put the injured party back to their original position. When a person rescinds a loan during the three day period the loan is simply not funded. There are no closing costs because there is no closing (exceptions such as appraisal fees may apply). The borrower simply keeps their existing loan; but what about when the loan has already closed? What about when the borrower has made payments on the loan for say, two and half years? In that case, what happens is that all closing costs and all interest paid to date on the loan are returned to the borrower. I highlight these two items because most people find the need to read them several times. The truth is there are other favorable events that take place, but this should at least peak your interest.


What makes a loan rescindable for more than three days.
First, a loan must qualify, that is it must be a refinance, or non-purchase loan, secured by a principle dwelling (Second mortgages and home equity lines of credit qualify since they meet the requirements above.) 15 U.S.C. § 1635(a); 12 C.F.R. §§ 226.15(a) 226.23(a)


Second, there must be a failure by the creditor to provide accurate material disclosures or the notice of right to cancel in the prescribed manner. 12 C.F.R. §§ 226.15(a)(3), 226.23(a)(3). Regulation Z defines, in no uncertain terms, what the term material disclosures is intended to include. “The term “material disclosures” means the required disclosures of the annual percentage rate, the finance charge, the amount financed, the total payments, the payment schedule, and the disclosures and limitations referred to in sections 226.32© and (d).” 12 C.F.R. § 226.23(a)(3)(fn48). In a typical loan transaction these terms can be found on a document called “Truth In Lending Disclosure Statement”. The numbers on this disclosure statement must be accurate to within very narrow tolerances. Depending on the type of loan, the Annual Percentage Rage (APR) must be within 1/8 of 1 percentage point of the actual APR. 12 C.F.R. § 226.22(a)(2). The total finance charge can not be understated by more than $100 in most cases, and not more than $35 if the creditor has initiated foreclosure proceedings. 12 C.F.R. §§ 226.23(g), 226.23(h). It is necessary to carefully examine the final closing statement and compare it to the Truth In Lending Disclosure Statement to identify possible discrepancies.


The notice of right to cancel is perhaps the most straight forward requirement of the creditor set forth by TILA, yet the most commonly violated in predatory lending. It seems apparent from reading TILA, Regulation Z and the associated commentary, that Congress was concerned with two aspects of the creditor/borrower relationship. First, they wanted to make sure borrowers received as much disclosure as practical so that they can make an informed decision. Second, they wanted to make sure that borrowers had ample time to consider this decision after being presented with all the details. The three-day right to cancel is intended to accomplish this second concern.


The law is very clear on what is required when it comes to the notice of right to cancel. Each borrower, must receive two notices of right to cancel which clearly and conspicuously disclose: (1) the retention or acquisition of a security interest in the consumer’s principal dwelling; (2) the consumer’s right to rescind the transaction; (3) how to exercise the right to rescind with a form for that purpose, designating the address of the creditor’s place of business; (4) the effects of rescission; and (5) the date the rescission period expires (Regulation Z § 226.23((1)(i-v)). In an effort to assist creditors, Regulation Z even includes a model form showing exactly what must be disclosed. 12 C.F.R. § 226 App. H. Unfortunately, creditors often leave the completion of these forms to the closing agent or notary public. Given the recent rise of “mobile notaries” or “loan document signers”, the environment is fraught with negligence when it comes to this duty.


To understand how this negligent disclosure occurs, it is important to understand how the loan signing is conducted in practice. After loan documents are generated and issued by the lender, they are sent to an escrow company designated often times by the mortgage broker. Typically the loan documents are transmitted via email but regardless of the form, the escrow company prepares the loan document package, including the lender documents with documents prepared by escrow. The notice of right cancel is one of the documents provided by the lender, however since the lender does not know when the borrower will ultimately sign the documents, they typically leave certain fields on the notice blank, specifically the date the rescission period expires (see item #5 above). The documents are then presented to the borrower, often in the comfort of their home with a “mobile notary” present to notarize the requisite documents and direct the signing. The notary public will usually present the borrowers with a “copy package” of the loan documents that is an exact duplicate of the ones to be executed and returned to escrow. This is often where the problem arises. A prudent lender will put sufficient copies of the right to cancel in the loan documents when they deliver them to escrow. In a transaction with a husband and wife this usually means a total of five (5) copies, two per borrower as required by statute, and one to be acknowledged by the borrower and returned to the lender. However the notary will often presume that the copy package contains all necessary paperwork for the borrower(s) and proceed to have them execute all notices and retain them in the package. When the lender receives five notices they logically presume that the borrower is in possession of a copy package and thus the remaining four are redundant. The problem is that the notary never opened up the copy package and properly completed these notices and thus, the borrower never received adequate notices of right to cancel. This scenario has numerous variations but the result is that many borrowers were never properly given their notice of right to cancel, and as such, are entitled to rescission pursuant to TILA.

In defense, a lender will undoubtedly raise is that they are in possession of an acknowledged copy of the notice of right to cancel which clearly states the borrower acknowledges that they received two copies of such notice. TILA addresses this defense in section 1635© stating “Notwithstanding any rule of evidence, written acknowledgment of receipt of any disclosures required under this subchapter by a person to whom information, forms and a statement is required to be given pursuant to this section does no more than create a rebuttable presumption of delivery thereof. (emphasis added)”. 15 U.S.C. 1635©. Further case law has indicated that this is a low burden (See Cooper v. First Gov’t Mortg. & Investors Corp., 238 F. Supp. 2d 50 (D.D.C. 2002)). Presumably the defective notices the borrower(s) is likely in possession of from their copy package is at least a strong argument in overcoming the presumption.


Raising the Issue of Rescission

Although a rescission claim can be brought initially in a complaint, it is often prudent, and more cost effective to do so by sending a letter. The letter should be sent to the current lender who although may not have been the original party to the loan transaction, is still liable under TILA. 15 U.S.C. § 1641(a). A borrower should be prepared to “tender” which is a requirement of TILA and basically means the borrower must return the money that is still owed to the creditor. 15 U.S.C. 1635(. Essentially, the calculation requires taking the money that was actually received by the borrower or paid to others on their behalf (such as the payoff of the previous loan), and deducting all interest payments and attorney’s fees. Since it is likely the borrower will not have this money on hand, it is best to have the borrower arrange for a new loan conditioned on the rescission, and notify the creditor of this fact in the rescission letter. Technically, the lender has 20 days after receipt of a notice of rescission to terminate the security interest and return all monies owed. 15 U.S.C. 1635(. Returning the monies owed is usually done in the form of a new “payoff statement” reflecting the adjusted amount. Given the severity of this remedy, a lender will often respond with reasons as to why they do not feel rescission is proper. A discourse can ensue that can last for any length of time. At some point it may be necessary or appropriate to file a suit in order to conduct proper discover and ultimately have the question resolved in court. Regardless of the method of obtaining a rescission it is important to note that the lender is responsible for reasonable attorney’s fees and costs. 15 U.S.C. 1640(a)(3). This is of particular importance because without such a provision the remedy is often meaningless to a borrower despite obvious justification.


Some may argue a violation such as the failure to properly date the right to cancel notice is overly technical and abusive. This position is myopic in that it minimizes the value a remedy such as rescission plays in defending borrowers against predatory lending. A borrower who is satisfied with their loan and the transaction that proceeded rarely seek legal counsel; rather it is those who have stories of misrepresentations and deceptive practices that do so. Violations of TILA may not be the sole cause of action in a case, but it certainly is one that can potentially provide the greatest relief, that is, returning the borrower to their original position. Failure to identify a potential rescission effectively denies a key remedy available to a borrower in need. In addition to a thorough understanding of TILA and Regulation Z, a solid understanding of the loan process is critical. Discussing a borrower’s transaction with a mortgage broker, escrow officer or notary public can be extremely enlightening in bridging this gap.


The law in this area will continue to evolve as we are already seeing numerous court decisions hand down significant rulings with respect to predatory lending. Unscrupulous lenders will always be a part of home financing, but at least with remedies available such as the ones provided under TILA, a borrower will have some recourse, and hopefully, lenders will weight the risks of such activity and err on the side of caution

I am also sending in my TILA request tomorrow per my attorney. I am spending a little money
to have my attorney do a loan audit. He has stated that since I have been getting nowhere trying to do a loan mod that once they recive this letter they will be very eager to work something out. I will let you know the results

good luck to both of you.

BonbonXO
Great info. I am looking into TILA violations by my mortgage company.
Would over valueing a home be considering a TILA violation? Or simply a predatory loan practice?
Thanks for the insight.

Acesfull

I've totally given up on Wells Fargo. They are the rudest, most incompetent do nothings I've ever had the mispleasure of dealing with. I'm pulling all my $ out of Wachovia by months end just because WF now owns them.

But I digress............I want to try the TILA route. How did you guys find the lawyers you're working with? I googled, but all I could come up with are some auditors that seemed like scam places that you keep hearing warnings about.

Any input?

I'd be grateful for anyone's thoughts on my situation.

I found the OP to be very interesting and decided to go back and look at the closing documents for our second mortgage, which has horrible terms. We are not in danger of foreclosure because we can afford the payments, but I hate throwing money away. Anyway, we only received one Truth-In-Lending Disclosure Statement each at closing and there is no Notice of Right to Cancel document. Is this enough to do something with? The amount financed on the note was only about 29k but we've paid almost 12k (including closing costs on this note). What I'd really like to do is know if this is enough ammunition to go back to the mortgage company and try to get them to modify the loan and reduce the principle. Next month will be 3 years since our close.

Thanks in advance.

I am so sorry to hear about your situation. I am a retired loan officer and watched so many of fellow co-workers put people in situations just like yourself, knowing what was going to happen in the long run. There are a lot of great companies out there that will help you with a loan modification at a reasonable price. I have decided to use my own free time to help people with staying in their homes.

BonbonXO
Great info. I am looking into TILA violations by my mortgage company.
Would over valueing a home be considering a TILA violation? No we are battling this too
Or simply a predatory loan practice? More predatory loan practice but, it is really hard to prove now, if the real estate market hadn't tank we might have more leverage, our home is down 100K and we remodeled a kitchen since our last mortgage so we are closer to being down 130K. But every attorney is different.
Thanks for the insight.

But this what I did learn when I was doing my research 75% of Mortgages have TILA violations, but not all TILA violations are powerful enough to rescind your mortgage, some are just $1,000.00 sanctions against the underwriter.
Acesfull

Some of the NACA.net attorneys have real estate listed under their specialties, they may be able to help or maybe give a referral. I was very lucky every time I found an article in a law journal or law review written about TILA violations, the author just happen to practice in my area.

You do have to be very careful, there are some loan modification companies out there that are very good while other are not so good. While I was researching this we were contacted by a few who; were not so good. They told me they would audit out loan doc for TILA Violation and use that as leverage to deliver a modify loan with a reduce interest rate and if I was lucky maybe a principal reduction. I would only need a retainer of $7,500.00 so they could get started.

With our case between with what we are entitled to in principal reduction and attorney’s fees, it nearly 125K. Less than reputable loan modification companies have attorneys who use all this great information and they are actually “pocketing” the settlement and attorney fees and only give the consumer a loan with a reduce interest rate. A lot of comsumer don't know about this, this is why I posted my saga, at least one of them away-

I by no means am saying all Loan modification compines are bad-

How did you guys find the lawyers you're working with
Consumer Protection attorneys
Real Estate attorneys
Foreclosure Attorneys (even if you are not in Foreclosure)
attorneys who specialize RESPA ( Real Estate Settlement Procedures act)

This is what I was looking for. Good info. Thanks!

I think there is 1 foreclosure attorney in Ohio. He's in Cleveland. That's it.

Looking into forensic loan document audits is always worth it before giving up.
It is unbelievable how many violations you can find within your loan documents.


(**Former Mortgage loan processor)

I just want to make sure I understand this so that I proceed properly. I should find a loan auditor first? I found a consumer protection attorney. Is that where I should go? I obviously am going to have to pay for the attorney to look at the loan papers, correct?
Thanks!

Like they hindsight is always 20/20, if I had the opportunity to do this over I might do things a little differently.
I would recommend you get you loan docs audits first, I have been spending a lot of time reading on a website Here although this is a foreclosures defense website, there is a lot of really good info to be found there. I just notice they will audit your loan doc for a what, I consider to be a reasonable price, I think about $150.00. This is not a full blown forensic audit, but it will tell you where you stand. If any TILA or RESAP violations are found, you can then decide if you want to rescind the loan or would those violations serve you better if leveraged in a loan mod.

If you rescind the loan you must be prepare to refi in order to tender the payoff.
If you rescind, and all the money you have paid in and you still owe more than market value on your home, you could be SOL, and I don’t mean statute of limitations.
With the full out recession you have to consider your present home value, your D/I ratio and of course because this is CB, your credit score as well.
If you leverage the violations for a loan mod than you don’t have to refi.

This is critical decision if you are in an area that has taken a huge hit in property values or if you were seriously over appraised. Appraisal Fraud, is out there but from what I understand it is really hard to prove unless someone comes forward.
What I find strange is not all attorneys handle both types of cases, (TILA/RESP violations to rescind and TILA/RESPA violations for loan mods) at least all don't in my area but I have found that many California, Florida and Arizona attorneys do, but these are some of the area that have been the hardest hit.
The proper way for you to proceed is to determine which path is best for you.
And No, we did not have to pay the consumer protection attorney to look at our Loan Docs, but with a loan mod approach you may have to.

The question of rescission of a fraudulent mortgage is not as cut and dried as it appears to be when limiting the statute of repose ( NOT a statute of limitation) to 3 years in cases where a forbearance agreement was entered into. Although there is no "tolling" of the 3 year time period allowed because it is a statute of repose, it may be argued that the forbearance agreement "re-ages" the time allowed. There is, as yet, no case law specifically on the topic, however the legal criteria that must be met are in this;

http://library.law.emory.edu/4circuit/sept98/972215.p.html

It's my understanding that TILA and RESPA violations do not survive bankruptcy unless objections are made during the bankruptcy.

Just wanted to point that out too. Alot of people are being "pushed" into bk trying desperately to save home utilizing the automatic stay, because their loan mod apps keep getting denied (for no good reason). If this is the case and one didn't raise issues of TILA and RESPA, they stand, from what I understand. Sucks.

I have been trying to find a few minutes to update this post with more information.

We still are in court but it has only been 8 months! Our lender agreed to rescind 7 months ago, but now they can’t seem to do simple math.

One of the most common TILA violation can be found on the Truth in Lending Disclose
your payment frequency must be listed as Monthly (or whatever the terms were)
if it has been left Blank that is a TILA violation. This is a HAMM violation

With our mortgage, most of our recession leverage encompassed our previous mortgage. Since this was a re-fi, I am referring to the loan that was to be paid off (Mortgage A.) The mortgage we are rescinding (Mortgage B ) was supposed to be disbursed on 12/28/2006 and mortgage A was too be paid off. The lender/underwriter for mortgage B didn’t disburse the pay off for mortgage A, until 1/2/2007. This may not seem like a big deal but, we had a payment due on mortgage A on 1/1/2007. We also paid 4 points on mortgage A and could not take the tax right off until 2007. We also had (4) different payoff amounts for Mortgage A in the paperwork for Mortgage B. This was questioned at closing, but we were told that any amount over the unpaid principal balance for Mortgage A would be refunded back to us. The amount request to payoff Mortgage A was increased just enough to cover the additional payment that was due on 1/1/2007 and the (1) day of additional interest for 1/2/2007, this is the amount that was recorded on line 104 of our settlement statement for mortgage B, but the payoff amount requested by Mortgage company A was the amount to pay off the loan on 12/28/2006.

This is considered changing the terms of the loan after closing. Had this have not happen over two calendar years I am not sure we would have questioned what really happen with the pay off. We also had some things going on in our personal lives. I suffered a major in early 2006, they say after 2 years you will recover as much as you ever will. I always knew something was goofy about our mortgage I just could put my finger on it, until I branched out and learned about the other consumer protection laws and found TILA and the right to rescind. I will say it was like pulling teeth to go back to the lender on Mortgage A, nearly 3 years after they had been paid off and get detailed account history but it was worth it and that was when thing started to make sense.

It was my understanding from reading, and sorry, I cannot remember where, that the right to rescind was a statutory issue, and thus not open for negotiation. Either you can or you cannot. They didn't have to agree....it just was whether they liked it or not. Just sayin'. And I cannot find that BK stuff. I posted a question about it elsewhere and nobody resonded but I will keep looking!

You should NOT have to file BK!!!!!

I have two homes (the second is a rental) and I can ALMOST guarantee there are violations in that loan, as we had to actually ASK for a copy of the closing documents; the escrow agent wasn't going to give us a copy and didn't want to make us a copy.

So, I am pretty sure there are mistakes there.

HOWEVER, my 3 years is up in February. I already have a lawyer, but I am not sure I can get her to do what I want her to do. The house is in foreclosure and they actually got a judgement against me (without serving me any paperwork). She is trying to keep attorney costs low for me as I am getting dinged for the lawyer's fees on both sides for the foreclosure.

How, can I stop the 3 years from running out while I research my loan docs???

A lot of people rescind their loan just to stall the lender and to buy them some time. However, TILA and the extended 3 year (4 in Massachusetts) right to rescind ONLY applies to refi of your primary residence.
The consumer doesn't have to state a reason why they are rescinding, it is best to read the statue to get the correct verbiage, I am going by memory on this, Truth in Lending Regulation Z, make sure you are reading from either:
fdic.gov
Federalreserve.gov

It is also my understanding that TILA violations can be raised any time in a defense to a foreclosure, prior to the Sale of the home.

Do you know if this would apply to our traditional refinance? I guess it was considered on Citi's part a loan modification, but they also called it a refinance for FHA because they do not participate in the HAMP. Long and messy story. Anyhow, just curious. They sent our closing documents by ups and we took them to get notarized and sent them back. We did pay closing costs and all sorts of other fees. Thanks!