Picture this…you bought a property in the past 3 years and now you’re wondering if you made the best choice. Prices are dropping and mortgage rates are very low. What do you do? How do you take advantage of this bust economy but keep the house you’ve grown to love? Exercise your Extended Right of Rescission!

Because of the Federal Truth in Lending Act you have the Right of Rescission regarding your home loans. This Right of Rescission last for 3 days under normal circumstances! However, the recent boom in the real estate economy wouldn’t be considered normal circumstances. With the frenzy of lenders originating loans there were a lot of mistakes made. Chances are very good that there were some mistakes made regarding your loan! If that is the case, you have an Extended Right of Rescission regarding your current home loan.

If you indeed qualify for the Extended Right of Rescission you can simply notify your lender that they have violated your rights under the Truth in Lending act and that you want to rescind your loan(s). The lender then must cancel their loan, repay all the money they have received in connection with the loan (and its origination) and then you give them back the house. You also have the option to pay the lender a reasonable amount (possibly through a refinance) and keep the house. It’s that simple!

That is what is entitled by law but here is where the fun begins! The lenders can’t afford to take back any more homes. They already have more property than they are allowed by federal regulations (in many cases!). Rather than give up the property or fight a major legal battle, it is time to negotiate with the lender. If you’re successful in litigating your position the lender will have to pay you to get the property back that they will most likely sell for less than market value (because it is bank owned). Rather than go through this you can offer to maintain the current mortgage with some modifications! These should include a reduction in the principle balance owed, a reduction in the interest rate, allowing a mortgage assumption or removing the “due on sale” clause, a reduced amortization period, etc. At this point the lenders are almost always willing to discuss options!

Take a moment to estimate how many mortgage payments have been made and how much was spent on closing costs. This is approximately the amount the lender must repay to you for the right to claim your house. Since this money is owed to you anyway, this is the amount that you should negotiate through the above listed terms. Finally, get a good opinion (or two) about the current market value of your property either through an appraisal or a CMA (Comparitive Market Analysis).

For example…

let’s say you owed $200,000 on your home with a mortgage payment of $1,500/month and an interest rate of 7%. You’ve owned this home for 2 year (24 months) and paid about $4,000 in related closing costs. If you rescinded this loan the lender would owe you $1,500 x 24 months = $36,000 plus closing costs of $4,000 = $40,000!

While negotiating with the bank we might offer to keep the loan at 5% for 15 years with a principle balance of $168,250. This would maintain the current mortgage payment of $1,500 but would reduce the pay-off time by 13 years (which works out to be nearly $150,000 in interest savings over the life of the loan).

OR

We leave the loan terms the same but reduce the principle to $160,000 and re-amortize the loan for the original 30 years. This would reduce your payment $300/mo! That is money you can spend anywhere you want and you now owe $40,000 less on your home.

OR

Without changing any terms we negotiate 4 years of 1/2 payments so that for the next 48 months the mortgage payments are only $865/mo! You save the $40,000 over 48 months or you can pay down the principle with the difference in the mortgage payment!

OR

You could point out that the market value of the property is only $175,000 and if the lender takes the property back the could only hope to sell for that amount (at best). This market value actually becomes the starting point of your negotiations and you could still utilize the above options too.

Obviously this owner option is very powerful in creating an optimal mortgage situation for yourself. We’d be happy to discuss your situation with you if you think you may qualify. We’ve been 95% successful in creating this opportunity for our clients!