With payment defaults and resulting foreclosures, the mainstream news will have you believe the mortgage industry is somewhere between a state of major reform and the tipping point of colossal failure. Realistically it’s somewhere in between, but that’s not a very newsworthy view.
Markets are cyclical in nature. The stock market demonstrates this with such redundancy; the terms Bear and Bull are associated with buyer or seller purchasing conditions rather than animals, on Wall Street.
The mortgage industry experienced unprecedented growth from 2000-2005 as interest rates dipped to historical lows and the number of new program types swelled, which reduced qualification standards, which afforded home ownership to a huge new pool of people. More money in the market caused more demand which caused higher home values or prices…nonetheless everyone could run with Bulls. Today, many of those newly entitled borrowers are fighting the Bears.
Many of the people clamoring that this down cycle is solely due to the predatory nature of the mortgage industry also probably keep news of Paris Hilton's latest dealings in their feed readers. It makes great front page news but the predatory aspect of the mortgage industry has been around far longer than the past five years. Listen to me, The XBroker, playing down the predatory nature of the mortgage beasts...whoda thunk it.
In any case, the unfortunate action of foreclosure is being levied against a record number of consumers for a myriad of reasons, mainly the sharp increase in monthly payment requirements due to short term ARM’s and the overall relative ignorance of consumers when it comes to personal financial planning...and you can sprinkle on some grievous mortgage professional conduct.
Regardless of why one is facing foreclosure, its water under the bridge at that point...you can’t change the past but you can address the future. So, what can one do that is facing foreclosure?
Fight it.
~8-10, yes 80% of mortgages originated are in violation of the Truth-In-Lending-Act (TILA) due to material misrepresentation by either the mortgage originator or funding lender. Now, this is sure to shock even the most ethical mortgage professional and cause an angry rebuttal of denial from mortgage jocks of all moral standards, but it’s true.
I’m not saying that 80% of mortgage professionals are consciously trying to mislead consumers, so please hear me correct…80% have violated some aspect of the TILA that was meant to protect the consumer.
""TILA “was passed to aid the unsophisticated consumer so that he would not be easily misled as to the total costs of financing.” (Thomka v. A.Z. Chevrolet, Inc., 619 F.2d 246, 248 (3d. Cir. 1980); Shepeard v. Quality Siding & Window Factory, Inc., 730 F.Supp. 1295, 1299 (D.Del. 1990). See also Mourning v. Family Publications Service, Inc., 411 U.S. 356, 363-69, 93 S.Ct. 1652, 1657-60, 36 L.Ed.2d 318 (1973)). It was thought that “through TILA, Congress [could] remedy the [sq]divergent and often fraudulent practices by which credit customers were apprised of the terms of the credit extended to them.” Smith v. Fidelity Consumer Discount Co., 898 F.2d 896, 898 (3d. Cir. 1988). “Congress designed the law to apply to all consumers, who are inherently at a disadvantage in loan and credit transactions.” (Jackson v. Grant, 890 F.2d 118, 122 (9th Cir. 1989)).
To further this congressional policy TILA achieves its remedial goals by a system of strict liability in favor of consumers when mandated disclosures have not been made. 15 U.S.C. §1640(a) (emphasis added). The standard applied is considered “strict liability” in the sense that absolute compliance is required and even technical violations will form the basis for liability.” (Shepeard v. Quality Siding & Window Factory, Inc., supra. at 1299). This means that “technical or minor violations of TILA, or Reg. Z, as well as major violations impose liability on the creditor and entitle the borrower to rescind [the loan].” (Smith v. Wells Fargo Credit Corp., 713 F.Supp. 354, 355 (D.Ariz. 1989)) (emphasis added).
The first circuit Court of Appeals has unequivocally stated that any violation of TILA, regardless of the technical nature of the violation, must result in a finding of liability against the lender. (Bizier v. Globe Financial Services, Inc., 654 F.2d 1, 3 (lst Cir. 1981)). TILA is a remedial statute which is designed to balance the scales “thought to be weighed in favor of lenders,” and is therefore to be liberally construed in favor of borrowers. ""
I’m not an attorney, nor did I stay in a Holiday Inn Express last night…but black letter law is irrefutable. None the less, it should go without stating that hiring an attorney is mandatory if you chose to challenge the validity of your mortgage, which comes at an expense. I personally know of attorneys who are well versed in successfully litigating these types of complaints at a cost of about $4000. Understandably this may not be economically practical for many people who are experiencing the financial difficulty commonly associated with foreclosure…if you had an extra $4k you probably would pay your mortgage current, although on many occasions, after adding up past due payments, an assortment of late fees, and other 3rd party costs, the amount to ‘come current’ far exceeds $4k.
A few other notes of interest if you choose to fight the validity of your mortgage due to TILA violations:
- There is a 3 year window from the date you signed for the mortgage to file a right to rescind.
- It’s most effective if the mortgage was a refinance with cash-out transaction.
- The more TILA violations the greater the probability of success.
- Prepare for a long fight. Lenders will try and stall you out, filing repeated motions to dismiss, hoping you quit the claim. The upside is that you keep your home during this time.
- It greatly helps if you have another tendered offer, in other words, another entity or individual who will finance the home. Terms are irrelevant; the fact that you can get some form of financing somewhere is the important part.
If you’re interested in learning more about this option, contact me and I’ll divulge all the secrets you need to know ;)
Disclaimer: I'm not an advocate of trying to rescind your mortgage simply because you can. If your mortgage professional didn't provide 3 separate notices of rescission at the time of closing, while still a TILA violation, it's pretty frivolous and shallow to try and side-step an obligation based on a loop-hole.
Stay in close contact with the lender.
Silence is deadly when you go delinquent on your mortgage payments. Open and honest communication will get you a lot further towards getting a lender to work with you than ignoring the situation. Lenders aren't in the business of repossessing property, it’s an expensive process that consumes their resources and tarnishes their portfolio. Internal employees, attorneys, real estate professionals, and contractors are all cost outlays a lender would rather not have to spend.
If you’re going to be late on your mortgage payment, some pro-active measures will go a long way. Prepare by having an articulate plan ready to demonstrate your financial shortcomings are short term.
Don’t Dwell in Denial.
If you’re in over your head with no relief in sight, market the home for sale. This is no time to be trying to fetch top dollar, price the home to move, preferably ~15% below market value. If you don’t have this type of equity in the house, there are plenty of investors out there who’ve taken Carlton Sheets or some other overpriced real estate riches seminar and understand how to consummate a ‘short-sale’. You’ll probably receive two tons of mail from individual investors looking to engage you under these exact terms. Many investors will offer you some sort of cash benefit to work with them, which is better than a fat ugly ‘I8’ on your credit bureau and little else to show. Swallow your pride, recognize the circumstances you’re in, and make the best of a bad situation.
Certain investors may even agree to lease the home back to you under a lease option to purchase strategy. Ask if they’ll buy the home from the bank under short sale terms, and then lease the home back to you with an option to purchase it back from them within a specific time frame, usually ~2 years. Be prepared to articulately demonstrate that you’re not a deadbeat, just in a short term bind. Words aren’t enough, go the extra mile and document how you got into this situation and how you plan to get out. Unfortunately the buy back price and other terms won’t be friendly, but beggars can’t be choosers…at least you don’t have to vacate the premises.
Know Your Property.
There are plenty of on line tools and resources out there that yield similar if not identical information that a real estate professional would use to research and market your house. Zillow, e-Appraisal, Trulia etc contain enough data to create a knowledgeable compelling marketing piece for a potential buyer. The traditional Realtor 6% commission (equity) whack likely doesn’t fit into the budget if you’re staring at a foreclosure, so prepare to do some homework and late night candle burning. A little extra work here will go a long way towards sounding like a person who is in a temporary pinch rather than desperate (sharks smell blood).
Pimp Your Property
GoogleBase, Craigslist, Zillow Postings, Edgeio, even e-Bay are cheap (free) places to list your property. Don’t be afraid, actually I encourage you to describe your situation as ‘distressed’ and priced to move. Demonstrate it’s priced below market value, show comparables and other supporting data.
If you really want to be aggressive here, go down to the County (where your property is located in) court house where they display ‘Notice of Public Sale’ information. There are sure to be investors carousing around the board looking for deals…approach them with some cursory information about ‘a house you know about’ and see if they (or others of similar ilk) are interested. Use the above mentioned strategies to negotiate a deal.
Whatever you do, prepare, prepare, prepare.
I Have No Equity nor do I Make Any Money
Well, you probably shouldn’t have bought the house in the first place.
Update on RealESpace tomorrow…Stay Tuned!
