The Right of Rescission: How to cancel a bad mortgage (Part II)
The Truth in Lending Act mandates additional disclosures at closing for ARMs. A list of the required disclosures may be found at 12 C.F.R. § 226.19. In my clients’ case, there were a number of disclosures that were not made. For example, my clients did not receive a copy of the HUD handbook titled “Consumer Handbook on Adjustable Rate Mortgages.” Additionally, my clients were not given a historical example of how interest rate changes could affect their mortgage payments. Most importantly, in my opinion, the lender (and broker) failed to inform my clients that the initial rate of their mortgage was actually higher than the Index rate called for by the adjustable rate note.
In other words, my clients did not receive a “teaser rate” or an interest rate that is lower at the beginning of the loan. Quite the opposite, they received an interest rate that was higher than their rate would have been if it had been set by the Index.
I believe that these failures to disclose, and others too numerous to list, are material failures to disclose and therefore extend the period during which my clients may rescind their loan to three years.
Rescission is a four-step process. First the consumer must give notice that he or she is electing to cancel or rescind their mortgage loan and state the TILA violations they allege to have occurred during the loan process.
Step Two: The lender’s security interest is automatically void and the consumer is relieved of any obligation to pay any finance charges, closing costs or other costs associated with the loan.
Step Three: The Creditor has twenty days from receipt of the notice to return any money and to take actions necessary to reflect the termination of its security interest.
Step Four: Following step-three, the consumer is obligated to tender back to the lender any money given the consumer at the consummation of the loan.
As a practical matter, lenders almost always oppose a consumer’s attempt to rescind a loan. It is at this juncture that the consumer lawyer must be ready to present positive evidence that material disclosures were not made. The better prepared the lawyer, the more likely he will be able to either rescind the loan or extract loan concessions from the lender.
It is important for consumer lawyers to be creative and resourceful during these difficult times. Foreclosures are taking a serious toll on millions of Americans. I will keep you posted on the progress of this rescission action.
