How to prevent foreclosure using the Truth In Lending Act (“TILA”).

Posted on August 17, 2008. Filed under: Truth in Lending Act | Tags: , , , , , , , , , , , , , , , , , |

What can you do when your adjustable rate has exploded beyond affordability or when you have been put into a loan you didn’t qualify for to begin with?  Hold your lender accountable under TILA for putting you into that unaffordable, predatory, or confusing loan.


TILA, or the Truth-In-Lending Act of 1968, is a United States Federal Law requiring clear disclosure of key lending terms, arrangements and all costs.  The statute is contained in Title I of the Consumer Credit Protection Act, as amended (15 USC 1601 et seq.).  The regulations implementing the statute are known as “Regulation Z” (Reg. Z).  The goal of TILA is a clear understanding of all costs before signing for a loan.  This is to protect the borrower from deceptive and predatory lending practices. 


The Truth In Lending Act (“TILA”) and the Real Estate Settlement Procedures Act (“RESPA”) are violated daily by lenders. These laws are often violated by mortgage companies and sometimes completely overlooked by foreclosure attorneys. Not only can the Truth In Lending Act be used to stop the foreclosure process, but it can also help you avoid bankruptcy. Once TILA and/or RESPA violations are discovered in your loan documents, your lender will be eager to discontinue the foreclosure process and settle the dispute.


Nearly every residential mortgage loan has TILA and/or RESPA violations which can be used as leverage to negotiate a loan modification or a short sale payoff. Additionally the violations can be litigated, which may result in substantial damages due to the borrowers.   


The penalties for failure to comply with the Truth In Lending Act can be substantial. A lender who violates the disclosure requirements may be sued for twice the amount of the total finance charges on the loan

Can a borrower rescind a loan to avoid foreclosure?


The general rule is that a borrower whose loan is secured by his or her principal residence has the right to rescind a non-purchase loan. There are two separate rights to rescind. The first is the three-day right to cancel, which can be exercised by the borrower during the three business days after the loan documents are signed. The second right to rescind is the extended right to cancel. The statute of limitations on this extended right is three years; however, it can be tolled for certain reasons and a borrower can always rescind a rescindable loan, if the lender starts foreclosure proceedings.


Under TILA, the extended right to rescind is created when the borrower is not properly notified of the three-day right to cancel or the TILA disclosures are not accurate within certain statutorily defined tolerances.

The right to rescind a loan is an effective bargaining tool that a borrower may utilize to negotiate a loan modification or a short sale pay-off with a lender in an effort to avoid foreclosure. However, like every other legal maneuver, prior to its exercise this option should be carefully evaluated by a qualified attorney





Not Legal Advice

The information presented on this Web site is not to be construed as legal advice. Legal advice must be tailored to the specific circumstances of each case. Every effort has been made to assure that this information is up-to-date as of the date of publication. It is not intended to be a full and exhaustive explanation of the law in any area. This information is not intended as legal advice and may not be used as legal advice. It should not be used to replace the advice of your own legal counsel.


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