McDonnell Property Analytics (“MPA”) offers a Truth In Lending Analysis that checks your lender’s preliminary and final Truth In Lending Disclosure Statements or TRID Disclosures[1] for completeness and accuracy to determine:
Without a doubt, the most important consumer protection law enacted by Congress is the Truth in Lending Act (“TILA”) which is codified at 15 U.S. Code § 1601, et seq.[2]
Regulation Z, 12 C.F.R. § 1026, et seq. implements the purpose of the TILA and is enforced by the Consumer Financial Protection Bureau (“CFPB”).[3]
The regulations that govern most residential mortgage transactions begin at 12 C.F.R. § 1026.17, General disclosure requirements. Importantly, a consumer’s right to rescind a mortgage loan that was used to refinance their primary residence (“a consumer mortgage transaction”) is discussed at 12 C.F.R. § 1026.23[4] which provides:
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 interest is or will be subject to the security interest shall have the right to rescind the transaction…until midnight of the third business day following consummation, delivery of the notice required by paragraph (b) of this section, or delivery of all material disclosures, whichever occurs last.
If the required notice or material disclosures are not delivered, the right to rescind shall expire 3 years after consummation, upon transfer of all of the consumer's interest in the property, or upon sale of the property, whichever occurs first. (emphasis supplied)
When grounds exist to rescind a consumer mortgage transaction, the consumer need only mail or fax a notice of rescission to the creditor. Immediately thereafter, the note and mortgage are automatically canceled by operation of law.
Rescission of a consumer mortgage transaction eliminates all interest and finance charges that were imposed by the lender at closing. It also voids the mortgage which can stop a foreclosure in its tracks. 12 C.F.R. § 1026.23(d)(2) provides:
Within 20 calendar days after receipt of a notice of rescission, the creditor shall return any money or property that has been given to anyone in connection with the transaction and shall take any action necessary to reflect the termination of the security interest.
The effect of rescission is to restore the parties to the position they were in just prior to the transaction. Once the lender has fulfilled its obligation, the consumer must repay the principal amount borrowed, unless a Court declares otherwise. Here are two compelling examples from our files:
CASE STUDY – Bait and Switch Scheme
MPA’s California Client provided us with a preliminary Truth In Lending Disclosure Statement and a copy of his Adjustable Rate Note memorializing a complex negative amortization mortgage loan in the amount of $635,000.00. When we compared the two documents, we found that the Truth In Lending Disclosure Statement understated the Finance Charge by $1,466,317.30. Essentially, we were able to show the Judge that there was a bait and switch in the loan terms at closing. Having established these facts to a mathematical certainty, the Judge declared the Note and Deed of Trust to be unenforceable by the lender.
CASE STUDY – Predatory Lending
MPA’s Washington Clients filed a Chapter 13 Bankruptcy to stop a foreclosure of their primary residence. They contacted us to see if we could help. We asked the Clients to send us all the documents they had in their possession relating to the subject transaction. We also ordered their mortgage file from the escrow company that closed the transaction. Our Truth In Lending Analysis revealed that the couple had been duped by a dishonest mortgage broker who steered them into signing onto a mortgage transaction they could not afford. We discovered this by comparing the preliminary Truth In Lending Disclosure Statement —which described a fixed rate mortgage loan— with the final Truth In Lending Disclosure Statement which revealed a predatory, high-cost, adjustable rate mortgage loan.
To illustrate the fraud, we prepared a side-by-side comparison for the Bankruptcy Court and the Washington State Attorney General’s Office, who had opened an investigation. The Judge found this predatory lending scheme to be so egregious that he declared the Note and Deed of Trust null and void and extinguished the debt in its entirety.
THE LESSON
As these examples show, implementing the protections of the Truth In Lending Act is a consumer’s first line of defense against a predatory mortgage lender or an abusive loan servicer.
MPA’s skilled analysts have the tools, technologies, and forensic techniques to identify violations of the Truth In Lending Act and prove them in court.
[1] “TRID” stands for Truth in Lending Act / Real Estate Settlement Procedures Act Integrated Disclosure.
[2] The Truth in Lending Act is available at: http://uscode.house.gov/view.xhtml?req=granuleid%3AUSC-prelim-title15-chapter41-subchapter1&edition=prelim.
[3] An interactive version of Regulation Z is available on the Consumer Financial Protection Bureau’s website at: https://www.consumerfinance.gov/rules-policy/regulations/1026/.
[4] 12 C.F.R. § 1026.23, Right of rescission: https://www.consumerfinance.gov/rules-policy/regulations/1026/23/.
