The Right of Rescission: How to cancel a bad mortgage (Part I)
The right of rescission is an under utilized and little understood but powerful weapon in the consumer lawyer’s arsenal. Nothing will stop a foreclosure faster than a consumer giving notice of rescission to a mortgage company.
Most lawyers and many consumers are aware of the normal three day "cooling off" period or right to rescind a mortgage. Every consumer receives a notice of the three day right to rescind at the closing of his or her mortgage. But few lawyers know that if the lender (or the lender’s broker) fails to give all the disclosures mandated by the Truth in Lending Act, 15 U.S.C.§ 1635(a), then the right of rescission is extended to three years after the date of the loan.
The power to cancel a mortgage, at the sole option of the consumer, anytime up to three years into a mortgage loan is the “nuclear option” for an embattled consumer. Counsel for mortgage lenders have candidly told me that nothing keeps mortgage lenders up at night more than the prospect of thousands of borrowers attempting to rescind their loans.
I recently filed a rescission action for a couple in Mobile, Alabama. My clients are good people with solid work histories and no prior problems paying their debts but they were victimized by an unscrupulous mortgage broker. The broker convinced them to enter into a high interest Adjustable Rate Mortgage (“ARM”) with the promise that he would refinance them into a fixed rate mortgage in one year. However, he failed to disclose that he was receiving outrageously high fees for brokering the ARM including a “yield spread premium” in the amount of $10,800.
A yield spread premium is a commission paid by the lender to the broker for having obtained a mortgage at an interest rate that is actually higher than the lender would have otherwise offered the loan to that borrower. A lender that pays a yield spread premium of $10,800 has no incentive to refinance a loan a year later at a lower rate.
