March 15, 2008

TILA Rescission

Filed under: TILA

The Truth in Lending Act (TILA), with its $200 to $2,000 statutory damages plus attorney fees here and there, is not exactly sexy and it’s not a highly desirable area of specialty law for most attorneys.  The ambulance chasing stereotypes that one would expect and most assuredly does tend to find in an area such as personal injury do not gravitate toward TILA litigation.  Then again, comparatively speaking, consumer law in general isn’t overly lucrative.  Some may consider my opinions naïve when I write that many attorneys enter into the field of consumer law to help the consumer first and foremost.  Of course, I know it’s not a naïve notion at all, having personally worked with many fine attorneys in consumer law I know this to be true; nevertheless, at the same time, everyone’s got to make a living and consumer lawyers are no exception, right?

Sorry for my rambling, it’s late, I’m tired, and I’ve been speed-reading an 1100+ page book by the National Consumer Law Center for the past two-days that’s titled “The Truth in Lending Act”.  I’m on page 444 and plan to be done next week.  Let me share with you why I’m reading it and give you an example of how the information will help change the lives of some of the Broken Credit Bloggers.   

Two years ago a family borrowed $300,000 to refinance their home at 9% interest into a subprime adjustable rate mortgage.  The loan had closing costs (finance charges) of around $15,000.  The home appraised for $300,000.  All the payments have been made on time, but it hasn’t been easy for this family since the payments have been $2,250 per month interest-only.

Now the rate is about to adjust to 12% with a $3,000 per month payment!  Added to that, the home has gone down in value; it’s now only worth $270,000.  The payoff on this loan is still $300,000, because this has been an interest-only loan.   This family is in serious trouble.

They want to refinance to an FHA fixed rate loan of 6%, but they can’t because the payoff of the loan is $300,000 and the property is now worth $270,000.  So, they’re stuck.

(enter TILA)

The TILA permits these borrowers to rescind the original subprime refinance loan.  When they rescind, the payments that they have paid over the past two-years ($2,250*24 = $54,000) are credited back to them.  Also, the $15,000 closing costs (prepaid finance charges) they incurred two years ago with that last subprime refinance gets credited to them as well. 

The credit of $54,000 + $15,000 = $69,000 is credited against the $300,000.

With the TILA, the new payoff is now only $231,000.  The property is worth $270,000 and they now can obtain an FHA loan at 6% interest on a $231,000 loan amount.  The new payment (PI and MIP) is $1,460 per month.

Their monthly payment was going to go from $2,250 to $3,000 and instead went from $2,250 to $1,460!

(back to my consumer lawyer ramble)

I’m actively looking for some consumer lawyers to help the Broken Credit Bloggers throughout the 50 States in the U.S.A.  If you are a lawyer and would like referrals for your State, then send an email to me through the blog.  I’m not looking for anything in return.  I just want to help my audience to be successful in obtaining their FHA mortgage refinance to a low fixed rate.  I don’t think any of the Broken Credit Bloggers mind if you make some money in the process. 

To the Broken Credit Bloggers, check out TILA the Hun and TILA TIME!

As for me, I’ve got another 700 pages to read, but that will have to be for another day.  First I’m gonna go to sleep and get some rest.  When I awake it’s Sunday and I have an altogether different law book to read.  I hope you do the same.  We’re all in this together.  Goodnight.

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