TRUTH IN LENDING ACT 

The federal Truth in Lending Act (TILA), 15 USC 1601 et seq., requires lenders to provide detailed information about credit transactions to borrowers. TILA also imposes liability on lenders when they fail to provide this information accurately or in the form required. Furthermore, the liability for a lender’s mistake can pass through to an assignee, thus making the purchaser of the mortgage loan liable for mistakes made by others.

Statutory liability under TILA usually arises when a lender fails to provide accurate TILA disclosures to a borrower. In an individual action under Section 130, the measure of damages can include (i) actual damages; (ii) statutory damages; and (iii) attorneys’ fees.

For certain transactions, a mistake in disclosures may also extend the rescission period for three years beyond the initial three-day rescission period. This means that the borrower has the loan funds, but may decide to reject the loan at any time during the rescission period. In a foreclosure action against the borrower’s home, a relatively small mistake (causing a $35 underdisclosure) in failing to classify a fee as a finance charge may permit a borrower to file a successful rescission claim.

PREDATORY LAW 

Predatory lending is sometimes used as a "catch all" phrase to describe lending activities that violate any consumer protection laws. However, there is also a subcatregory of mortgage-related consumer protection laws that are called “high cost” or “predatory” lending laws.

The federal Home Ownership Equity Protection Act (HOEPA) and various state and local high cost acts set annual percentage rate (APR) and fee thresholds above which certain predatory lending practices are prohibited. These thresholds are calculated amounts unique to each loan transactions. Triggering a high cost threshold is not in itself a violation of law; however, most investors will not purchase these loans (or purchase them at a deep discount). In fact, most loan purchase agreements between loan sellers and loan buyers contain a mechanism whereby the buyer can force the seller to “put back” (or buy back) the loan if it is ever found to be high cost. This makes high cost loans undesirable to a lender, making it more willing to negotiate with the borrower.

Predatory loans are loans that trigger high cost thresholds and contain terms, such as a prepayment penalty. Predatory loans are subject to civil, and in some cases criminal, liability that can far exceed the value of a loan. In some cases, the liability for engaging in these prohibited practices can pass through to an assignee, thus making the purchaser of the mortgage loan liable for mistakes made by others.

STATE CONSUMER CREDIT 

There are many state consumer credit laws that govern the features and terms of a loan. These laws vary widely. Different laws apply based on how the lender is chartered or licensed. Further, different laws apply according to a loan’s features (such as occupancy type, purpose, lien position, APR and principal amount).

State consumer credit laws can include restrictions, limitations or requirements related to: loan fees, loan term, loan amounts, usury, interest rate accrual, payment calculations, balloons, negative amortization, late charges and grace periods, escrows and credits.

While not all state consumer credit laws impose severe penalties, certain restrictions (such as usury) may invoke criminal liability. Others may prevent a lender from foreclosing or impose statutory damages.

EQUAL CREDIT OPPORTUNITY ACT (ECOA)

The Equal Credit Opportunity Act (ECOA) prohibits discrimination in lending based on race, creed, religion, national origin, sex, marital status or age. It also ensures that all consumers are given an equal chance to obtain credit. This doesn't mean all consumers who apply for credit get it: Factors such as income, expenses, debt, and credit history are considerations for creditworthiness.

The law protects you when you deal with any creditor who regularly extends credit, including banks, small loan and finance companies, retail and department stores, credit card companies, and credit unions. Anyone involved in granting credit, such as real estate brokers who arrange financing, is covered by the law.

FAIR CREDIT REPORTING ACT (FRCA)

The Fair Credit Reporting Act (FCRA) promotes the accuracy, fairness and privacy of information in the files of consumer reporting agencies. When you apply for a mortgage, the lender pulls a credit report. The FCRA guarantees you will have access to that report.

FREQUENTLY ENCOUNTERED VIOLATIONS

Excessive Fees

We look for Excessive Fees and Improper Charges by your Lender. We also look for Deceptive Abusive Predatory Lending Practices, Excessive Prepayment Penalties, Tangible Benefits to the Borrower, Affordability to the Borrower, Home Mortgage Disclosure Act (HMDA) Data, Broker Fee Agreements, and State and Federal Disclosure Accuracy.

Constructive Fraud

Material facts include the terms of the loan, whether there is a prepayment penalty, or any other information which a reasonable borrower would want to know before accepting the loan. Did the broker or loan officer or anyone working for the broker or loan officer fail to disclose any material facts to the borrower?

Breach of Contract

All the mortgage documents and attachments are a contract. The lender must follow all the terms of the contract such as the way the interest is calculated, and the penalties it assesses. Were there any terms in the contract which the lender failed to follow?

Fraud and Negligent Misrepresentation

Were any representations, statements, or comments, written or oral made by the loan officer, broker, notary or anyone else contradict the terms of the documents? When a mortgage professional makes errors which a reasonably diligent mortgage professional would not have made, he or she may have made a negligent misrepresentation.