Why the Truth in Lending Act Can Save Your Home and Fix Your Loan

This post will go over the Truth in Lending Act and what it can do to bring possible litigation against your lender for violations of the TILA.

The penalties for failure to comply with the Truth In Lending Act can be substantial. A creditor who violates the disclosure requirements may be sued for twice the amount of the total finance charge on the loan. In the case of a home mortgage, this can be a very significant amount. Costs and attorney's fees may also be awarded to the consumer. A lawsuit must be begun by the consumer within a year of the violation, but certain tolling provisions apply giving the consumer more time.

These laws are in place to protect you, the homeowner, the American people, but yet some mortgage brokers and lenders act as if it's the wild, wild west.

Truth in Lending Act (15 U.S.C. §§ 1601-1667f, as amended)

The federal Truth In Lending Act was originally enacted by Congress in 1968 as a part of the Consumer Protection Act. The law is designed to protect consumers in credit transactions by requiring clear disclosure of key terms of the lending arrangement and all costs. The Truth In Lending Act is designed to reduce confusion among consumers resulting from the different methods of computing interest and prevent fraud, deception and unfair business practices. It does not require creditors to calculate their credit charges in any particular way. However, whatever alternative they use, they must disclose certain basic information so that the consumer can understand exactly what the credit costs. The Truth in Lending Act is implemented by the Federal Reserve Board.

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.

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(b)(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.

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.

[Brian K.]

What about the tender of the lenders investment? TILA is a good law, but in most cases it is on viable in defense of a foreclosure to reduce damages. The only ones who make any real money through TILA are the lawyers through the fee provision.

By the time most people are in this position the credit is shot and they can't get a refinance. In some case it pays to go "Hard Money" but more often then not it is a hollow threat to the bank.

I would love to hear from some mortgage people about an FHA loan after a period of no payment history. If the loan rescinds, then the payment were never due thus never late from a legal point of view. If FHA did not consider the illegal loan late payments in the loan approval process many homeowners could get out of the crap loans they are in and into a real loan.

[Moe Bedard]

Good points Brian. Maybe Nathan or Paul can comment on this and what they have seen.

[HopeinMaderaCA]

Can you please tell me what form I would be looking for in my paperwork? I am starting to review so I can take it all to either an attorney or the non profit agency for help.

CountryWide has denied our modification loan and we have not received any notices even through we have not been able to pay our mortgage for two months. I have tried working with them since August 2007. I called to find out what was happing with our Mod Loan. The person said our Mod.Loan had been denied because we hadn,t had our loan for long. She said that they didn't have to notify us of the decision. We have been in our home for 2 1/2 years, I have posted our story a month or so ago.