The government passed a law commonly known as the Truth in Lending Act which is designed to protect the consumer against predatory lending practices. While the intentions of the legislation are legally binding, the actual implementation of this legislation by lenders is fraught with problems and inaccuracies. Because the Truth in Lending Act is a federal law, all lenders are required to comply with it completely. Our experience has shown that over 95% of the loans currently in default (pre-foreclosure) have Truth in Lending violations that can benefit the homeowner.

As we have worked with our clients who are in various stages of foreclosure we have discovered our clients have one or more violations of the Truth in Lending Act and therefore have an extended Right of Rescission. Normally this Right of Rescission is for 3 days but in cases where there has been a violation of the Truth in Lending Act, that right can extend up to 3 years. If one chooses to exercise their Right of Rescission then the foreclosure process stops immediately! Not only does the foreclosure stop but the lender will have to give the homeowner a cash refund, clear their credit report and the homeowner is free to move on with no strings attached.

If you meet the following requirements then you can qualify for an extended Right of Rescission on your own property: If your home loan was originated within the past 3 years and 1) you didn’t receive all disclosures as required by law, or 2) your disclosed APR is inaccurate by more than ½ of 1 percent, or 3) the finance charges were understated by more than $35, or 4) a mortgage broker fee was not included. While this list is not comprehensive it does show that there is a high probability that there is at least one violation of the Truth in Lending Act regarding your property.

When you choose to invoke the Right of Rescission the following things must happen in order. 1) The security instrument (trust deed) becomes void and the consumer is no longer liable for any amounts or payments (including any finance charges). 2) The lender returns any money given to anyone in connection with the transaction (cash rebate to borrower). 3) Lender shall take any action necessary to reflect the termination of the security interest (trust deed is removed from the property). 4) Borrower shall tender the money (reasonable value) or property to the lender (the homeowner can decide whether to (refinance and) pay off the original lender or just give them the house and walk away).

If a homeowner is in default and the lender is trying to foreclose take the home away, the borrower can immediately stop the foreclosure process through their Right of Rescission. The lender is then required to return all monies paid to the lender (including mortgage payments, fees and closing cost for originating the loan) in a cash payment. Since the loan has been rescinded all terms of the loan agreement are void so all negative reporting to the credit bureaus must be eliminated and the trust deed be reconveyed to the homeowner. Once the lender has fulfilled their part then the homeowner must pay the lender a reasonable value or give the lender the home (which they were trying to take anyway). Usually the lender is going to fight this process through the courts and the homeowner is entitled to stay in the home without a mortgage payment until the process is resolved. This process could take months (or possibly years) before the lender can get the home through the court process. During the time it takes to go through the legal process a homeowner can pay off debt, repair their credit, or do what it takes to get back on their feet.

By knowing your rights a homeowner can save themselves a lot of money. If a homeowner is having financial difficulties and/or the home is in foreclosure, the borrower could stop the foreclosure process, receive a lender cash rebate, stay in the home for several months with no mortgage payment and get a portion of their credit cleared up before leaving their home. Regardless, the lender is usually going to try and negotiate favorable terms for everyone to prevent a large cash payment to the homeowner with no remuneration in return. It’s important to know and understand your rights under the law.