A Legal Remedy
The Truth In Lending Act was passed by congress to protect consumers from bank fraud broker fraud and predatory lending practices.
"The Truth In Lending Act (TILA) is to be liberally construed in favor of consumers, with creditors who fail to comply with TILA in any respect becoming liable to consumer regardless of nature of violation or creditors' intent."
The Truth In Lending Act ("TILA") is used as legal remedy to recover TILA violation fines and possibly void the lenders security interest in the property. The Act is in Title I of the Consumer Credit Protection Act and is implemented by the Federal Reserve Board via The Act is in Title I of the Consumer Regulation Z (12 C.F.R. Part 226).The Regulation has effect and force of federal law.
If your loan was after September 30, 1995 (that’s when the teeth were put into TILA) and never consummated you can rescind your loan Pursuant to the Federal Truth in Lending Act (“TILA”), You have the right to rescind the transaction within 3 days of receipt (The rescission period clock never starts ticking until the transaction is consummated) of his/her notice of his/her right of rescission and all other material disclosures required by TILA and the regulations therein. (15 U.S.C. §1635(a).
What is the right of rescission?
Truth-in-Lending Act (TILA) Consumer Credit Protection Act passed in 1969.
Truth in lending act -- Regulation Z
The Truth in Lending Act (TILA), Title I of the Consumer Credit Protection Act, is aimed at promoting the informed use of consumer credit by requiring disclosures about its terms and costs. In general, this applies to each individual or business that offers or extends credit when the credit is offered or extended to consumers; the credit is subject to a finance charge or is payable by a written agreement in more than four installments; the credit is primarily for personal, family or household purposes; and the loan balance equals or exceeds $25,000.00 or is secured by an interest in real property or a dwelling. TILA is intended to enable the customer to compare the cost of cash versus credit transaction and the difference in the cost of credit among different lenders. The regulation also requires a maximum interest rate to be stated in variable rate contracts secured by the borrower's dwelling, imposes limitations on home equity plans that are subject to the requirements of certain sections of the Act and requires a maximum interest that may apply during the term of a mortgage loan. TILA also establishes disclosure standards for advertisements that refer to certain credit terms. In addition to financial disclosure, TILA provides consumers with substantive rights in connection with certain types of credit transactions to which it relates, including a right of rescission in certain real estate lending transactions, regulation of certain credit card practices and a means for fair and timely resolution of credit billing disputes. This discussion will be limited to those provisions of TILA that relate specifically to the mortgage lending process, including:
1) Early and final Regulation Z disclosure requirements
2) Disclosure requirements for ARM loans
3) Right of rescission
4) Advertising disclosure requirements
TILA requires lenders to make certain disclosures on loans subject to the Real Estate Settlement Procedures Act (RESPA) within three business days after their receipt of a written application. This early disclosure statement is partially based on the initial information provided by the consumer. A final disclosure statement is provided at the time of loan closing. The disclosure is required to be in a specific format and include the following information:
1) Name and address of creditor
2) Amount financed
3) Itemization of amount financed (optional, if Good Faith Estimate is provided)
4) Finance charge
5) Annual percentage rate (APR)
6) Variable rate information
7) Payment schedule
8) Total of payments
9) Demand feature
10)Total sales price
11) Prepayment policy
12) Late payment policy
13) Security interest
14) Insurance requirements
15) Certain security interest charges
17) Assumption policy
18) Required deposit information
Disclosure Requirements for ARM Loans:
If the annual percentage rate on a loan secured by the consumer's principal dwelling may increase after consummation and the term of the loan exceeds one year, TILA requires additional adjustable rate mortgage disclosures to be provided, including:
1) The booklet titled Consumer Handbook on Adjustable Rate Mortgages, published by the Board and the Federal Home Loan Bank Board or a suitable substitute.
2) A loan program disclosure for each variable-rate program in which the consumer expresses an interest. The loan program disclosure shall contain the necessary information as prescribed by Regulation Z.
TILA requires servicers to provide subsequent disclosure to consumers on variable rate transactions in each month an interest rate adjustment takes place.
The Right of Rescission:
In a credit transaction in which a security interest is or will be retained or acquired in a consumer's principal dwelling, each consumer whose ownership is or will be subject to the security interest has the right to rescind the transaction. Lenders are required to deliver two copies of the notice of the right to rescind and one copy of the disclosure statement to each consumer entitled to rescind. The notice must be on a separate document that identifies the rescission period on the transaction and must clearly and conspicuously disclose the retention or acquisition of a security interest in the consumer's principal dwelling; the consumer's right to rescind the transaction; and how the consumer may exercise the right to rescind with a form for that purpose, designating the address of the lender's place of business.
In order to exercise the right to rescind, the consumer must notify the creditor of the rescission by mail, telegram or other means of communication. Notice is considered given when mailed, filed for telegraphic transmission or sent by other means, when delivered to the lender's designated place of business. The consumer may exercise the right to rescind until midnight of the third business day following consummation of the transaction; delivery of the notice of right to rescind; or delivery of all material disclosures, whichever occurs last. When more than one consumer in a transaction has the right to rescind, the exercise of the right by one consumer shall be effective for all consumers.
"When a consumer rescinds a transaction, the security interest giving rise to the right of rescission becomes void and the consumer will no longer be liable for any amount, including any finance charge. Within 20 calendar days after receipt of a notice of rescission, the lender is required to return any money or property that was given to anyone in connection with the transaction and must take any action necessary to reflect the termination of the security interest. If the lender has delivered any money or property, the consumer may retain possession until the lender has complied with the above."
The consumer may modify or waive the right to rescind if the consumer determines that the extension of credit is needed to meet a bona fide personal financial emergency. To modify or waive the right, the consumer must give the lender a dated written statement that describes the emergency, specifically modifies or waives the right to rescind and bears the signature of all of the consumers entitled to rescind. Printed forms for this purpose are prohibited.
Advertising Disclosure Requirements:
If a lender advertises directly to a consumer, TILA requires the advertisement to disclose the credit terms and rate in a certain manner. If an advertisement for credit states specific credit terms, it may state only those terms that actually are or will be arranged or offered by the lender. If an advertisement states a rate of finance charge, it may state the rate as an "annual percentage rate" (APR) using that term. If the annual percentage rate may be increased after consummation the advertisement must state that fact. The advertisement may not state any other rate, except that a simple annual rate or periodic rate that is applied to an unpaid balance may be stated in conjunction with, but not more conspicuously than, the annual percentage rate.
Who is able to rescind a loan?
The right of rescission doesn't apply just to borrowers. All consumers who have an ownership interest in the property have the right to rescind.
What does the right of rescission require of lenders?
The right of rescission requires lenders to provide certain "material disclosures" and multiple copies of the right of rescission notice to EACH owner of the property. Following proper disclosures, lenders must wait at least three business days (until you are reasonably satisfied that the owners have not rescinded) before disbursing loan proceeds.
When does the three-day rescission time clock begin to tick?
The three-day right of rescission period begins once the material disclosures and notice have been given, and lasts three full business days. Business days are defined by Regulation Z to include all calendar days except Sundays and federal holidays. Saturday IS considered a business day for rescission purposes, regardless of whether your offices are open.
In order to properly complete the Notice of Right to Rescind form, you need to know how to calculate the rescission period. Consider the following example.
Assume a closing is set for Thursday, November 15th, 2001, and that all material disclosures and notices are provided to the parties at that time. The rescission period would run:
Friday, November 16, 2001;
Saturday, November. 17, 2001, and
Monday, November 19, 2001.
Sunday is not counted since it is not considered a business day. The rescission period would end at midnight on November 19, 2001.
When may a borrower waive the right of rescission?
Regulation Z allows borrowers to waive their rescission rights, but this exception only applies in very limited circumstances. The law is protective of the right of rescission, and Lenders should be too.
Borrowers may waive their rescission rights and receive their loan proceeds immediately only if they have what is called a "bona fide personal financial emergency." This means a financial emergency of the magnitude that waiting an additional three days will be personally or financially devastating to the borrower. It might include situations involving natural disasters such as flooding, or a medical emergency that requires immediate funds. When this type of situation does arise, the borrower must provide a written explanation of his or her circumstances to the financial institution. This is not a document that you should draft for the borrower.
Waiving the right of rescission is not a common practice, mostly because doing it wrong can backfire and create a rescindable loan, causing all kinds of problems for the Lender down the road.
Violations of the Truth in Lending Act
Creditors are liable for violation of the disclosure requirements, regardless of whether the consumer was harmed by the nondisclosure, UNLESS:
The creditor corrects the error within 60
days of discovery and prior to written suit or written notice from the consumer, or
The error is the result of bona fide error. The creditor bears the burden of proving by a preponderance of the evidence that:
If the violation was unintentional.
The error occurred notwithstanding compliance with procedures reasonably adapted to avoid such error. (Error of legal judgment with respect to creditor's TILA obligations not a bona fide error.)
Civil remedies for failure to comply with TILA requirements:
Action may be brought in any U.S. district court or in any other competent court within one year from the date on which the violation occurred ( we take our cases to federal court). This limitation does not apply when TILA violations are asserted as a defense, set-off, or counterclaim, except as otherwise provided by state law.
Private remedies - applicable to violations of provisions regarding credit transactions, credit billing, and consumer leases.
Actual damages in all cases.
Attorneys' fees and court costs for successful enforcement and rescission actions.
For individual actions, double the correctly calculated finance charge but not less than $200 or more than $2,000 for individual actions.
For class actions, an amount allowed by the court with no required minimum recovery per class member to a maximum of $500,000 or 1% of the creditor's net worth, whichever is less.
Damages can be imposed on creditors who fail to comply with specified TILA disclosure requirements, with the right of rescission, with the provisions concerning credit cards, or with the fair credit billing requirements.
11 Steps to bring the lender to the bargaining table.
The following process is administrative. Each Mortgage is based on its own merits; you may have more steps and it may be necessary to go to court at additional expense.
Mortgage must have closed after September 30 1995, If before September 1995 it is recommended that you refinance.
1) Audit your Mortgage documents for TILA, RESPA violations ($2,000 for each violation is available).
2) Send combined "Qualified Written Request", rescission letter and violations letter to Lender and Agents certified mail
3) Wait 60 days for Lender and Agents to respond
4) Receive Lenders response (if any; usually the Lender defaults)
5) Send default letter to Lender and Agents certified mail 20 days after the rescission letter was delivered.
6) Call Lender and offer to negotiate settlement (if negotiations are refused go to step 7)
7) File complaint (lawsuit)
8) In some cases Lender may make offer to settle
9) You negotiate to void Lenders security interest in the property and demand payment of violations fines and free and clear title. (all of these damages may not be available in your case)
10) Lender agrees
11) Security interest in the property is voided and you collect violation fines and damages and Lender re-conveys clear Title.
Usually when the Lender gets "served" they will call the Borrower and want to begin negotiations with the borrower.
If they are convicted of TILA violations they may lose their Federal Reserve Charter.
The following is an example of some of the TILA violations you will find in your closing documents.
(i.e. yield spread premiums and service release fees)
Payment of compensation to mortgage brokers and originators by lenders
Unauthorized servicing charges
(i.e. the imposition of payoff and recording charges)
Improper adjustments of interest on adjustable rate mortgages
Referral fees to mortgage originators.
(i.e. a lender who pays a mortgage broker secret compensation may face liability for inducing the broker to breach his fiduciary or contractual duties, fraud, or commercial bribery)
Failure to disclose the circumstances under which private mortgage insurance (''PMI'') may be terminated.
Underdisclosure of the cost of credit
Excessive escrow deposits
Breach of Fiduciary Duty
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We believe that if you don't know your rights, you don’t know your options.
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Bank Fraud Victim Center
Copyright © All rights reserved.