With so many individuals in danger of losing their homes, there is a flood of pleas for aid. What may be done to halt the home foreclosure procedure? Many of our customers have chosen to exercise the robust expanded Right of Rescission to stop the foreclosure process in its tracks. I’ll try to explain.
A piece of legislation passed by the US government is known as the Truth in Lending Act. The purpose of this law was to shield borrowers from unfair lending practices. The actual costs of various loans and lines of credit were disclosed in multiple ways to safeguard borrowers. However, due to the influx of new loans, some of these disclosures have become deceptive (unintentionally or on purpose), causing harm to the broader public.
Every borrower has three business days to use their “Right of Rescission,” or “cooling off period,” provided by the Truth in Lending Act to make sure that the terms of their loan or line of credit are to their satisfaction and within their financial means. Consumers have three business days after receiving their loan documents to alter their minds and cancel the loan by submitting a Notice of Rescission.
We have assisted 95 percent of our clients discover that their Truth in Lending Act disclosures are inaccurate. These inaccuracies violate the borrower’s rights under the Truth in Lending Act and entitle the borrower to a more extended period during which they may exercise their Right of Rescission. A maximum of three years from the loan’s original funding date are available for the extension.
The borrower could sign a Notice of Rescission and send it to the lender if the lender made a mistake by the Truth in Lending Act while processing the foreclosure. After this happens, the borrower is no longer responsible for repaying the debt, and the lender has 20 days to remove the Trust Deed from the property. A Trust Deed is required for a lender to foreclose on real estate.
The foreclosure process is immediately halted, and the lender must legally return any funds it has already collected due to the rescission. This means that the borrower will get a full refund of their mortgage payments and any fees paid at closing. After receiving this rebate, the borrower may either return the property to the lender or deliver the property’s fair market value to the lender in cash (often through a conventional refinance).
If the loan or notice has been canceled, the lender must restore any prepayments and cannot report the loan or note as delinquent to the credit bureaus. This eliminates the potential for arrears, missed payments, and a foreclosure sale. If the borrower’s credit has improved, he or she may be able to refinance the property with a new lender and use the proceeds to pay off the previous lender, or the borrower may use the cash back to purchase a new home.
The time commitment of litigation is another nuance of this Right of Rescission procedure. Lenders typically fight back in court if they lose their Trust Deed and foreclosure rights. Most courts are overcrowded, and the wait time for an appearance has increased due to bankruptcies and other challenges related to the economic downturn.
Once a Notice of Rescission has been delivered to the lender, the borrower is no longer obligated to make further payments under the Truth in Lending Act. This means the borrower can stay in the house and avoid making mortgage payments (potentially bad credit) while the case is pending. Some of our clients have used their Right of Rescission to delay the inevitable loss of their home, allowing them to live rent- and mortgage-free for some time while protecting their credit from the damaging effects of foreclosure. To prepare for moving on with their life once the litigation is over, these clients have taken advantage of the free housing option to pay off other debt and get their finances in order.
Finally, the clincher… The lender must pay for all legal fees accrued in executing the consumer’s Right of Rescission if payment is not made within 20 days of the filing of the Notice of Rescission. Instead of paying up in the first 20 days, almost all lenders have sued or continued with the foreclosure (illegally), so our clients haven’t even had to pay for our services.
Our customers also have another choice that isn’t being used to its full potential. There is room for bargaining once the Notice of Rescission has been submitted (given to the lender). Lenders are in a tough spot because they must reimburse the borrower for all of their payments (possibly for three years’ worth), pay their corporate lawyers more money on top of the foreclosure fees they’ve already spent, refrain from negatively impacting the borrower’s credit rating by disclosing the late payments and foreclosure, and fail to recoup any of the mortgage payments they lost during litigation. Banks are willing to accept loan modifications that benefit the borrower significantly. These can include lower interest rates, mortgage payments, principal balances, loan reinstatement, loan assumption language, waiving the “due on sale” provision, and so on. This saves them money and allows them to recoup some of their investment through mortgage interest as they wait to sell the house.
This is a fantastic method for halting the foreclosure process and giving you bargaining power over the loan conditions with the bank. However, the expanded Right of Rescission is not available to all parties. Two attorneys on my real estate team focus solely on cases involving potential violations of the Truth in Lending Act and potential litigation. If you don’t already have a lawyer on retainer who focuses on this type of case, we’d be pleased to talk to you about it.
Utah is home to Khayyam Jones, an investor and Realtor. Fixer-uppers, foreclosed/short-sale properties, and urban infill projects are his forte as an investor.
Read also: Loan Mod – Tom And Katie’s Home Is In Foreclosure, Just What Should They Do?
