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
Image: Rdsmith4, via Wikimedia Commons