Real Mortgage Modification and the $35.01 TILA Mistake
One of the best ways to force your lender to agree to a real mortgage modification on your home applies if you refinanced your residence mortgage less than three years ago and your lender has started foreclosure proceedings. The federal Truth in Lending Act (15 U.S.C. §§ 1601 et seq.) is the best leverage to force your lender to significantly reduce your loan balance, cure any existing default, and pay your attorney’s fees.
The $35.01 Mistake
All you have to prove is that the finance charges were under-disclosed at closing by more than $35, and that it would be equitable to modify the mortgage. Given the fact that most refinanced mortgages are in the hundreds of thousands of dollars, and the mistake can be made by the closing attorney or the originating lender, it usually is not hard to find the $35.01 error that gets you the power to rescind your mortgage. It is the power to rescind that leads to real mortgage modification, since the lender must refund all finance charges and closing costs paid since your loan closed if you are entitled to rescind. An example of these mistakes can be found in this recently filed TILA Rescission Complaint (PDF) at page 8, paragraph 35 ( http://www.haegerlaw.com/sub/documents.jsp).
The Paper Notice Mistake
TILA also gives you the power to rescind your refinanced residence mortgage if the originating lender failed to give you the proper paper notice of your right to cancel the refinance. This error is amazingly common and, like the $35.01 mistake, the paper notice mistake must be raised before three years has passed since you closed on the refinance. To find out if you have a case, you should deliver all of your closing papers to your attorney exactly as you kept them stored, without removing the papers from the envelope or rearranging them.
The Tender Problem
The real hurdle to using TILA to get real mortgage modifications is ensuring that your facts are sympathetic to the court. Otherwise, the court may require that you come up with an enormous amount of cash and “tender” the net loan proceeds (the loan proceeds less all finance charges and closing costs paid to date), rather than allowing you to tender those funds over the remaining term of your mortgage. This “tender” problem is especially acute in the Ninth Circuit, where the courthouse doors have been effectively blocked. In the Fourth Circuit, however, where I practice, the courts have left the door open to TILA cases by allowing for tender on equitable terms.
Bankruptcy Court
Although you can enforce your TILA rights in any court, Bankruptcy court can be a good place to assert your TILA rescission rights since your bankruptcy gives you additional leverage and bankruptcy court usually is a more favorable forum to overcome the tender problem.
If you are looking for real mortgage modification, and your residence mortgage was refinanced less than three years ago, you should always get a TILA rescission analysis. It may be just what you need to get your lender’s attention and the real mortgage modification you need to keep your home. If you have questions, contact an attorney.
