TILA As Defense Against Foreclosure

28 Nov TILA As Defense Against Foreclosure

The Truth in Lending Act, often referred to as TILA (15 USC 1601 et seq.), can provide a defense to foreclosure when other options have failed. The regulations governing home refinance can be complicated, particularly when the loan terms trigger HOEPA, a provision of the Truth in Lending Act governing high interest or high cost loans against a consumer’s home.

The law is best used as a shield, rather than as a sword. Statutory damages under TILA are modest and, in the home loan context, run from $200 to $2,000, plus attorney fees. Actual damages are not required for an award of statutory damages. No matter how many violations have occurred, only one statutory damages award is generally allowed for each loan. The most powerful defensive weapon in the TILA arsenal is rescission of the loan.

The rescission right only applies when the loan meets certain criteria. First, the loan must be madeto a consumer and repayable in more than four installments. Second, the loan must not have been used for the purchase of the property. Third, it must not have been a refinance with the original purchase money lender, unless new money is given to the borrower, and then the rescission right only applies to the new money given.

The right to rescind a loan runs for only three business days from the date all material disclosures and the correct notice of right to rescind are given to the borrower. However, this rescission period can continue for up to three years if the notices are not properly given. HOEPA requirements add certain special disclosures to the list of grounds for rescission.

Rescission is not a free ride for the borrower. When the rescission notice is given to the lender, the security interest in the real estate or other collateral is immediately voided. The borrower must, within a reasonable period of time, tender repayment of the principal amount borrowed, without interest or fees, less all cost, any payments made on the loan, and any statutory or general damages due the borrower from the lender. Courts may allow the borrower to repay the debt in installments. The tender can even be made as an unsecured claim in bankruptcy.

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I was admitted to practice in 1978. I am certified as a Consumer Bankruptcy Specialist by the American Board of Certification. I regularly speak on tax and bankruptcy issues at state, regional and national conferences. Years of experience in practice before the Internal Revenue Service and Oregon Department of Revenue have given me the background to resolve a large variety of consumer tax issues.
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