Foreclosure Defense Tactics

TRUTH IN LENDING ACT (TILA)

As part of every loan transaction, the bank must provide the homeowner correct disclosures at or before the time of closing, like the amount of the finance charge and APR. If these disclosures are inaccurate, the loan may be statutorily rescindable under TILA. The lender must also provide a "Notice of the Right to Rescind." This is a specific notice that must be provided to refinance customers at closing. If this form is inaccurate or incorrect, the loan is rescindable up to three years after the date of closing. Rescission means the loan is canceled and all money paid to the lender is refunded. Moreover, if you purchased the property or used the proceeds to refinance and proper disclosures were not given, then you may also be entitled to money damages to offset the foreclosure.

REAL ESTATE SETTLEMENT PROCEDURES ACT (RESPA)

This federal law governs many types of disclosures that lenders must provide at the time of closing, in addition to prohibiting things like kickbacks and unearned fees. It enables damages, and sometimes rescission if the error triggers TILA.

HOME OWNERSHIP AND EQUITY PROTECTION ACT (HOEPA)

This is a very powerful federal law governing high cost refinance loans. Violations here enable rescission and substantial money damages that can be in excess of the loan's dollar amount.

RACKETEERING AND CORRUPT ORGANIZATIONS ACT (RICO)

A borrower may successfully plead a RICO claim in a yield spread premium case. The elements of a RICO claim are satisfied where the payment of the premium was not disclosed and the cost of the premium is passed on to the borrower in the form of a higher interest rate; and the broker represented that it would provide the lowest available rate.

EQUAL CREDIT OPPORTUNITY ACT (ECOA)

Bait-and-switch tactics can state a claim under the ECOA. ECOA provides private remedies for actual and punitive damages, equitable relief, and attorney fees.

UNFAIR AND DECEPTIVE PRACTICES

Over reaching mortgage transactions can often be challenged under state unfair and deceptive acts and practices (UDAP) law. Broker misconduct and yield spread premium, at least without disclosure, may violate a UDAP statute. There may be licensing violations. Transactions with lenders and/or brokers who are not licensed, but should be, may be void. It may be a UDAP violation for a lender to do business with an unlicensed broker. Most UDAP statutes provide for some combination of actual damages, statutory damages, multiple damages, attorney fees and costs, and some states, punitive damages.

FHA PRE-FORECLOSURE REQUIREMENTS

FHA requires every lender to mail a booklet called "How to Avoid Foreclosure" and set up a face-to-face meeting with the borrower before foreclosing (in most cases). If the lender does not take these steps, then it cannot foreclose.

APPRAISAL FRAUD

Many appraisers inflate the value of a property to help a lender justify a predatory loan. Sometimes the appraiser does this to please particular lenders to obtain repeat business from those lenders; other times appraisers may be colluding with lenders and receiving kickbacks for fraudulent appraisals. Remedies for appraisal fraud can include actual damages, punitive damages, and attorney fees.

BREACH OF CONTRACT

Just as you have an obligation to pay the mortgage, the lender has a responsibility not to interfere with your ability to do so - like force placing insurance making the payments substantially more expensive than they should have been. In addition, lenders who quietly reward brokers for brining borrowers to them-and subsequently passing on the cost of that reward to the borrower-may share liability for the broker's breach of fiduciary duty.

REAL PARTY IN INTEREST

This is a procedural defense to foreclosure that can be extremely effective at stopping the lender's ability to foreclose. It essentially questions the ownership of the mortgage and questions whether the foreclosing party is, in fact, the holder of the mortgage and note.

UNCONSCIONABILITY

This defense is focused on the events surrounding the creation and closing of the mortgage loan. A violation here gives the court great leeway in deciding whether the mortgage should be voided or changed.

FAILURE TO STATE A CLAIM

This general defense attacks the lender's ability to foreclose and is can be used in conjunction with one of the other foreclosure defenses.

FAILURE TO ESTABLISH CONDITIONS PRECEDENT

Want to get a foreclosure action thrown out of court right away? Use this defense that attacks the lender's pre-foreclosure processes.