The US Government passed a law commonly known as the Truth in Lending Act. This act was designed to protect consumers from predatory lending practices. This protection was in the form of various disclosures showing the real cost of various loans and lines of credit. However, with the wave of loans being originated some of these disclosures have become misleading (either accidentally or intentionally) and it has hurt the general population.

Under the Truth in Lending Act each consumer is given a 3 day Right of Rescission, a cooling off period, to determine if the loan or line of credit is what they want, what was advertised and what they can afford. If a consumer changes their mind during the 3 day period they can cancel any loan by signing a Notice of Rescission and they are then free from any and all obligations associated with the loan.

What we have helped 95% of our clients to discover is that their required disclosures, under the Truth in Lending Act, are actually incorrect in some way. These errors actually violated the consumer’s (borrower’s) rights under the Truth in Lending Act and give the consumer an extended Right of Rescission. The extension can last up to 3 years from the date of the loan origination.

What this means is that if someone is in foreclosure and there is an error under the Truth in Lending Act, the borrower can actually sign a Notice of Rescission and send that notice to the lender. This immediate removes all obligations in relation to the loan and, by law, the lender must remove the Trust Deed from the property within 20 days. Without a Trust Deed the lender cannot foreclose on the property.

Not only does this rescission stop the foreclosure process immediately but the law requires that the lender repay all of the money received in connection with the loan. This means that the borrower will receive all of their mortgage payments back in addition to the closing costs directly associated with the loan. Once the borrower has received this rebate from the lender they have the choice to give the lender the property or its reasonable value in cash (usually through a traditional refinance).

Not only is the lender required to return all the money paid but they cannot give any negative reporting to the credit bureaus because the loan and note were rescinded. That means there is no obligation to pay and therefore there can be no late payments and no foreclosure. With renewed credit worthiness the borrower is often able to refinance the property with a new lender and will have the means to repay the original lender or the borrower can move to a new property with their cash rebate and buy a different home all together.

Another variation to this Right of Rescission process is the lengthy amount of time involved in litigation. Most lenders react poorly to losing their Trust Deed and right to foreclose and will usually challenge the process through a lawsuit. With bankruptcies and other issues associated with the down-turn in the economy, most courts are full and there is an extended waiting time for a court appearance.

According to the Truth in Lending Act, once a Notice of Rescission has been sent to the lender all obligation to pay is legally ended. This means that through out the lawsuit time frame, the borrower is allowed to retain possession on the home and no mortgage payments are due to the lender (with no negative reporting to the credit bureaus). A few of our clients have exercised their Right of Rescission simply to stall the process of losing their home so that they have a place to live (rent & mortgage free) for several months and no negative credit reporting (no foreclosure on their credit even though they will eventually lose the house). These clients have used the free housing option in order to pay down other debt and get their finances in order so they can move on with their lives once the litigation has concluded.

And one last kicker…! If the lender doesn’t pay up within the first 20 days after the Notice of Rescission has been filed, they are also required to pay all attorney’s fees accumulated in enforcing the consumer’s Right of Rescission. Nearly ever lender has filed a lawsuit or proceeded with the foreclosure (illegally) rather than pay up in the first 20 days, so our clients haven’t even had to pay for our services!

There is another option for the consumer which hasn’t been utilized by our clients on a high level, yet. Once the Notice of Rescission has been filed (sent to the lender) an opportunity for negotiation exists. The lender has a very sticky predicament: they have to pay the consumer back all of their payments (up to 3 years), pay their corporate lawyers additional money above the foreclosure fees already spent, can’t damage the consumer’s credit by reporting late fees and foreclosure, realize additional lost mortgage payments during litigation and in the end they just get the house back (which may not be worth what they lent on it due to a falling market). Quite frequently the bank will consider a significant loan modification in favor of the borrower including reduced interest rate, reduced mortgage payments, reduced principle balance owed, loan reinstatement, include loan assumption language or waive “due on sale” clause, etc. This way they don’t have to pay additional money for the home and can recapture some of their money through the mortgage interest.

This is a pretty amazing tool for stopping foreclosure and forcing the bank to seriously consider negotiating loan terms. However, not everyone qualifies for the extended Right of Rescission. My real estate team includes two specialists in the area of Truth and Lending violations and litigation. We’re happy to discuss your situation with you if you don’t currently have an attorney who specializes in this area of litigation.

In the effort to create loans there has been a lot of misleading information regarding critical aspects of most home loans. As a result most borrowers were charged and have overpaid various fees (and in some cases those fees are continually being paid on a monthly basis). The federal Truth in Lending act requires the lender to honestly disclose all fees to the borrower before the loan is dispersed. Any errors (whether accidental or intentional) must be repaid to the borrower immediately.

In order to qualify for this rebate there are several things that must happen. First, one must catch the error(s) within the first 3 years. Second, there must be an error with the lending disclosures and/or loan fees paid. Third, one must still own the home. Fourth, the appropriate paperwork showing the error(s) must be submitted directly to the current loan servicer(whoever currently holds the mortgage).

Some of our clients have chosen to forgo their cash rebate in exchange for a change in loan terms through a loan modification. Some terms that we’ve seen negotiated include a direct principle reduction in the loan amount, a reduction in interest rate, no mortgage payments (up to 6 months), a change in loan terms allowing for loan assumption (good for when you decide to sell), removing the “Due on Sale” clause (also good when you decide to sell), and lender concession (such as free home insurance or lender subsidized property taxes). The lender is usually quite willing to negotiate special terms because they would rather keep a good customer than pay a large rebate for their errors.

For more information please contact us by email at Khayyam@KhayyamJones.com or by phone at (801) 787-7797.

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.

Bob Lender
My Understanding Lender Company
456 Overthere Lane
Sometown, State 12345

Current Date

RE: Loan #(your loan number) for property at (address of property)

Dear Mr. Lender,

We are contacting you today to explain the circumstances which have caused us to become delinquent on our mortgage payments. Although we have done everything possible to improve our financial situation, we are still short on the money owed to you. We would greatly appreciate the opportunity to obtain a (proposed outcome).

The main reason we have become delinquent in our mortgage payments is (explain the reason here).

Our circumstances have (or have not) changed. As of (applicable date) we have (describe your change in conditions). At this time we do not have enough income to pay our regular monthly mortgage payment and all of the accumulated payments and fee. We truly want to pay what is owed, but at this time do not know how to accomplish this. Therefore, we are turning to you for assistance.

We are asking for (propsed outcome). Doing so, would help us get back on track. Our home means a great deal to us and we desire to work with you to keep it out of foreclosure. Please advise us of all options available to stop foreclosure (or initiate a short sale) at your earliest convenience. We are anxious to reach an agreement and appreciate your prompt response.

Respectfully yours,

Print name of Borrowers
Signature of Borrowers
Loan #
Phone
Email addresses (if applicable)

The following items are important and need to be included in your hardship letter:
• Date
• Loan Number
• Reason for Default
• Supporting evidence and documentation
- Event details
- Date of events
• Documents supporting end of hardship (if applicable)
• Your proposed outcome (what you would like to happen)

The following is a list of valid reasons for hardship that would be accepted by most lenders:
• Death of borrower
• Death of spouse or family member
• Illness• Medical Bills
• Short-term or permanent disability
• Unemployment
• Decrease in working hours
• Decline in earning for self employment
• Elimination of overtime or second job
• Mandatory pay reduction
• Increase of expenses due to short-term unemployment
• Involuntary job relocation
• Failure of business
• Divorce
• Marital Separation
• Incarceration
• Military Duty
• Damage to Property

When writing your hardship letter make sure that you honestly represent the facts as you may be asked for supporting documentation to verify your claims. Include all of the things you have done to be responsible for your loan obligations. For example:
• Created family budget
• Seeking credit counseling
• Reduced bills & recurring expenses
• Secured new employment
• Secured additional employment
• Used savings
• Borrowed or closed retirement accounts
• Increased education (more employable)
• Sold large assets
- 2nd car
- Jewlery
• Stocks, bonds, mutual funds
• Cancelled luxury subscriptions
- Magazines
- Cable TV, Internet
• Exhausted other means to pay debt

(Click here to see examples of some hardship letters)

In addition, the Homeowner(s) needs to be prepared to show copies of the following for each borrower:
•Tax Returns (past 2 years)
•Bank Statements for All Accounts (past 2 months)
•Pay Stubs for all Employment (past 2 months)
•All monthly bills (past 2 months)
•Property Tax Bill
•Homeowner’s Association (HOA) bills or liens
•Property Insurance statement

While each foreclosure process is slightly different the basic processes are the same. A foreclosure process begins with 3 causes: 1) non-payment of the agreed installment payments and fees, 2) non-payment of property taxes, or 3) lapse of adequate property insurance (although some sort of forced-placed insurance is usually the first remedy for inadequate insurance). Next, some sort of notice of default or demand for payment letter is filed and sent to the mortgagee. There is a period in which the loan may be reinstated and brought current, generally between 15-90 days (depending on the state). Ads must be posted in public places, usually a local newspaper, and a notice is placed on the property announcing the sale of the property at a public auction (trustee sale). And finally, there is the actual sale of the property.

Here is a quick summary of the 4 basic foreclosure cycles:

1. Non-Judicial Foreclosure Cycle (120 days)

• Day 1 – Notice of Default (NOD) is filed
• 90 day reinstate period begins
• Day 90 – Ads are posted in newspaper & certified notice sent to property
• Notice is posted on property
• Day 120 – Trustee Sale

2. Non-Judicial Foreclosure Cycle (90 days)

• Day 1 – Notice of Default (NOD) is filed (aka Notice of Action, Notice of Trustee Sale, Notice of Sale)
• Day 1 – Ads are posted in newspaper & certified notice sent to property
• 90 day reinstate period begins
• Day 90 – Trustee Sale

3. Non-Judicial Foreclosure Cycle (21 days)

• Day 1 – Notice of Default (NOD) is filed (aka Notice of Action, Notice of Trustee Sale, Notice of Sale)
• Day 1 – Ads are posted in newspaper & certified notice sent to property
• 21 day reinstate period begins
• Day 21 – Trustee Sale

4. Judicial Foreclosure Cycle (3-6 months)

• Day 1 – Attorney sends “Demand Letter” (Pay in 10 days)
• Day 11 – Lis Pendens suit is filed
• Day 40 (- 90) – Court date, attorney gets judgement
• Day 50 (- 120) – Debtor has 10 day Right to Appeal
• Day 60 (- 160) – Ads are posted in newspaper (30 days)
• Day 90 (- 180) – Foreclosure Sale
• (Timeframes vary due to court availability)

It is important to realize that these are just general guidelines and minimum timeframes. Sometimes these foreclosure times can be longer depending on the trustee’s work load, court availability and negotiations with the debtor/mortgagee. It is important that you always seek competent legal counsel in the state you live in if you’re facing a foreclosure action. There are many legal and financial ramifications to this process.

*It is important to understand that the foreclosure process does not automatically eliminate the debtor’s obligation to repay the debt. The foreclosure is a process by which the lender tries to sell the property (that was promised as collateral) to satisfy the debtor’s obligation. If the property sale does not satisfy the loan obligation then the lender may, at the lender’s sole option, pursue other legal means to collect the balance of the debt. In the current market this option isn’t being pursued as aggressively but the lender still has the right to try and collect the full amount of the promised loan.