Mortgages

Homeowners Could Lose One More Option For Fighting Foreclosure

Comments 2 Comments

It may sound like a technicality, but according to consumer advocates and attorneys, a proposed change to the Truth In Lending Act (TILA) proposed by the Federal Reserve would take away the most powerful weapon consumers have to stop wrongful foreclosures: the right of recession. Hundreds of consumer groups, state and local legal services, and consumer groups have signed a letter to the Federal Reserve urging them to drop the proposal.

Currently under TILA, homeowners who are not given the correct documents at closing have up to three years to send a notice to their lender rescinding their loan. The lender is then required to cancel its security interest in the property. That doesn’t mean the homeowner is off the hook, though. He or she still has to pay the balance due, though that won’t include fees and interest that have accumulated.

Under the proposed change, lenders would be able to require homeowners to first pay the balance due before releasing the security interest. This would make it virtually impossible for a homeowner to exercise the right of rescission. It would be impossible for them to find a single lender who will lend them the amount needed to pay off the original lender if that lender still has a first priority lien on the property.

As the groups explain in their letter to the Federal Reserve:

“The cancelling of the security interest means that the homeowner has a defense to a foreclosure. It also means that the homeowner has the means to obtain refinancing so as to be able to tender the amount due.”

In addition, the groups are protesting a proposal that would allow lenders to understate the amount of monthly loan payments by as much as $100 and permit significant errors in the lender’s statement of the amount of the loan.

Lenders, no doubt, are anxious to see fewer lawsuits over faulty loans. But homeowners who are struggling to stay in their homes could lose just one more of the few options available to them.

Weigh in! Do you think the Fed should make it more difficult for consumers to fight foreclosures on predatory loans?  Here’s a link to a form to send a comment to the Fed electronically about this proposal: http://bit.ly/ieNRLm

Facing foreclosure?  Visit Credit.com’s Learning Center for information on Understanding Foreclosure and How to Save Your Home from Foreclosure.

Image: Rdsmith4, via Wikimedia Commons

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  • JohnnKC

    I suppose there are multiple extreme ways of looking at the issue. There are thoughs who want to protect the homeowners against the banks and lending institiutions’ draconian policies. And then there are those who think the homeowners are to blame for their delmna for being ill-informed, using bad judgment and being irrisponsible.

    But, the banks, mortgage companies and the government have all been complicit in creating this housing mess by creating bad financial products with the knowledge that many of these loans will fail, sold them as quickly as they could make them because they were time bombs ready to explode. And our government provided the bad governance that not only permitted it to occur, but facilititated it. And in addition to that, Wall Street marketed these products to encourage consumers to buy them.

    I remember the adds and news stories that stated home prices were soaring so high so quickly that consumers would be priced out of the housoing market. And home equity loans were also highly marketed and sold with lending institutions knowing that many of those will fail, too.

    Consumers did use bad judgment in purchasing homes they couldn’t afford, were uneducated about the products they were buying and borrowed against there homes without considering the consequences.

    But, many well-intentioned and prudent homeowners are now hurt because of the bad policies by the government in regard to housing and the mortgage iand banking industry, lenders who had no scruples about making loans that were surely to fail, those who marketed these products, and by unscruplous home buyers who were wreckless with their spending.

    I bought a home at half the price for which I was approved. The real estate agent nearly refused to show me a houses that was less than what I had been approved. I found the home myself and then he complained that his commission was too small. Little did I know that I would become disabled just a few months after purchasing my home. It has been a struggle to keep it and I”m surprised that I have.

    I now have equity in it, but I don’t know how long that will remain with foreclosures occurring in my neighborhood and with a the predictions of furthrer declines in home prices.

    I can understatnd why some people advocate that the lenders should go foreward with foreclosures and let the market find the bottom as quickly as possible. Once we hit bottom, we can edge back up again. There could be some merit in that.

    But it strikes me as somewhat wreckless and the casualities will be high. I certainly don’t want to see my home value decrease. After all, I think I did the right things. I bought a house just as I was encourgaged to do and I thought I used good judment in buying one for half the amount for what I was approved.

    Then again, some would say that I shouldn’t have bought a home and I still bought more than I could afford.

    In my opinion, I think those home owners who were wreckless and/or those who are underwater so much that they have no chance of saving their homes would be better off giving it up. It will be a milstone around their necks anyway. In fact, some homeowners should just walk away.

    But, I also think that the lending institutions should also pay the price for their seedy behavior in making these bad loans. I believe that they should take a haricut like everyone else and write off some of the balances on these mortgages and nogotiate lower interest rates. They have a huge amount of culpatbility in creating this mess. That might be one way of keeping many homeowners in their homes and soften the bottom of the housing market.

    Perhaps this scenario is a bit naive. But, I think the cost of these mistakes need to be shared. And perhaps those who profited the most should have to share a little more than others. Amd those home owners who were the most wreckless should pay ta little more, too.

  • http://www.credit.com Gerri

    John,

    Thank you for your thoughtful reply. Yours is an excellent illustration of how difficult this mess has become. You bought below market, and bought an affordable home, and yet now that home is at risk.

    I’ve written here about the solution that I think makes the most sense: judicial mortgage modifications in bankruptcy:

    http://blog.credit.com/2010/11/solving-the-foreclosure-mess-lets-get-serious/

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