The ability to raise claims and defenses against predatory mortgage lenders is critical to protecting your home against foreclosure.
The Difference Between Forensic and Comprehensive Audits
The majority of so-called "forensic" loan audits minimally attempt to determine federal Truth in Lending Act (TILA) compliance at the pre-closing stage and typically deal with outdated disclosures and trivial aspects of TILA, and make assumptions that have no present legal significance, standing or remedy. They are purely software driven and in fact used by the lenders themselves to review loan documents before purchasing them on the open market. The word GENERIC is a fair description of what you get with these types of audits.
Our Legal Analysis
Our objective is to determine whether your lender, table-funded broker, and/or actors higher up the food chain than the original lender, violated any specific federal statutory or regulatory mandates and/or California's unfair and deceptive practices laws (UDAP). This is only possible with a hands-on legal analysis of each stage of your mortgage loan transaction documents-from application through post-closing.
FACT: All federally related mortgage loans are subject to Regulation Z of the Truth in Lending Act (TILA) and Regulation X of the Real Estate Settlement Procedures Act (RESPA).
In addition to a multitude of federal TILA and RESPA violations, most residential mortgage loans originated from 2003 - 2007 included overreaching and/or predatory terms and conditions.
Our exhaustive legal analysis regularly produces an array of TILA violations plus overreaching and predatory terms and conditions, enabling us to frame an affirmative claim or defense to protect your home against foreclosure.
Our legal analysis combined with your claim or defense based on our analysis, exposes your lender's violations which include Regulation Z and applicable California UDAP laws.
A. The Federal TILA and RESPA Defenses
Regulation Z:
There are two determining Regulation Z defenses: (a) the under disclosure of finance changes, and (b) missing or inaccurate rescission notices; however, rescission applies exclusively to the refinance and junior lien classes of loans.
TILA's Regulation Z requires lenders to make clear, conspicuous, and accurate material disclosures, and the failure to accurately disclose all finance charges can lead to an understated finance charge (and corresponding APR violation). Moreover, if the loan was subject to the 3-day rescission period, an under disclosed finance charge can extend the rescission period to three years.
Lenders typically fail to disclose finance charges, such as loan processing fees, title policy endorsements, reconveyance fees, notary fees, and overcharges ("upcharges") for title policy premiums, appraisals, fees and impound cushions. If a foreclosure is underway, a $35 undercharge can trigger rescission.
Failure to deliver a proper 3-day notice of Right to Cancel also continues the right of rescission under Regulation Z. If your loan was subject to rescission at closing but is beyond the 3-year extended rescission period, either (a) or (b), above, may be sufficient to persuade a court to stay a trustee's sale and ultimately derail the foreclosure.
If your loan was not subject to rescission (a purchase, for example), an under disclosed finance charge, along with some of the predatory terms and conditions described below, and/or UDAP claims may be cumulative to produce the same end result.
What if your loan is still subject to rescission, but your home's value has declined to the point where there is no equity, of what value is the continued right to rescind the loan? Obviously, if you are unable to refinance in order to tender, rescission would appear to be untenable; yet, the fact that your lender violated TILA by under disclosing finance charges and/or by failing to deliver proper rescission notices signifies an egregious abuse of federal law and should support any claim or defense to prevent foreclosure.
Regulation X:
Most RESPA remedies for affirmative claims have a 1-year statute of limitations; ECOA and FHA claims have a 2-year statute of limitations. RESPA violations can be raised defensively at any time.
B. Overreaching of Predatory Terms and Conditions
Many lenders promoted loans that were not in the borrower's best interest, such as higher interest rates, negative amortizations, longer loan terms, balloon payments, or lengthier prepayment penalties. In the context of predatory lending, examples include loan products that disregard the borrower's ability to pay; falsifying loan applications in order to facilitate loan approvals (often found with ARMs and "stated income" loans); using bait and switch tactics, such as substantially changing loan terms at closing; interest-only loans with balloon payments at maturity which virtually guarantee default and the "flipping" opportunity; padded appraisal costs and fraudulently inflated home values; charging excessive loan and closing fees; and, mandatory arbitration clauses in subprime and securitized loans to the extent they may be discriminatory.
Our analysis-not limited to the following-includes these frequently problematic terms and conditions; however, one or more of the following terms and conditions does not necessarily signify a predatory loan, and any one of the terms and conditions may not, per se, rise to the level of a predatory event:
Pay Option and Hybrid ARMs. Lenders frequently marketed payment option (negative amortization) ARMs by offering very low "teaser" rates-often as low as 1%-for a short introductory period, usually one to three months. At the end of the introductory period, the interest rate increases dramatically, but the optional "minimum payment" is usually less than the interest accruing on the loan, and the unpaid interest is then added to the principal amount of the loan, resulting in negative amortization. Hybrid ARMs ("2/28," "3/27," "5/1," "7/1," and "10/1") often had low, fixed interest rates for the first two to five years, and often required interest-only payments during the first 5, 7 or 10 years. After the initial rate expires, the interest rate can adjust once every six months for the balance of the loan term, subjecting the borrowers to steadily increasing monthly payments as well as payment shock.
Lenders and their brokers also misrepresented how difficult it might be for borrowers to refinance some ARM products, particularly hybrid ARMs after the expiration of the initial interest-only period, failing to mention that they likely would not be able to do so unless the borrowers‟ home had maintained or increased its value. This was particularly true for borrowers whose loans had very high loan-to-value ratios, as there would be no new equity in the borrowers‟ homes to help them pay fees and costs associated with the refinances.
Yield Spread Premiums. Some lenders paid money to mortgage brokers to induce them to sign up borrowers at a higher interest rate and/or more oppressive terms. Many homeowners who received "subprime" mortgage loans actually qualified for "prime" or "A" loans, and were "steered" to a loan product with a higher interest rate and terms to create additional compensation for mortgage brokers (known as "YSPs" in the mortgage industry), thereby putting the borrowers at risk of losing their home and equity. According to one federal court, a YSP is a "bonus paid by a lender to a mortgage broker when the broker originates the loan at an interest rate higher than the lender's minimum approved rate . . . to reward the broker. . . ."
Balloons and prepayment penalties. A common feature of predatory lending was structuring loans so that the borrowers still owed most of the amount borrowed at the end of the loan. The borrowers are not able to pay the balloon payment at the end of the loan and may lose their home after making years of high interest payments.
Piggyback seconds. With a second or "piggyback" mortgage the borrowers are given a first loan for 80% of the property value, and a full-draw piggyback second loan (typically a HELOC) for 20% of the property value, for a combined loan-to-value ratio of 100%, based on the loan officer's representation that the value of the borrower's home would continue to rise and that they would have no problem refinancing.
Debt-to-Income Ratios (DTIs). The industry standard for a "front-end" DTI (total housing expenses: mortgage principal, interest, taxes, and insurance) is 28%. DTI's that are substantially higher than the industry standard may signify the extension of credit on unfavorable terms, and/or knowledge of the borrower's inability to make future loan payments when an adjustable rate mortgage resets.
Falsification or alteration of the Uniform Residential Loan Application (1003) was a common means of making unaffordable loans. The originated loan may have been based on "stated income" and/or "stated assets," in which case no income and/or asset verification took place. Without due diligence in the underwriting process, lenders could not adequately assess the borrower's ability to make their future loan payments when their interest rate and payments reset.
In our analysis (with or without the1003), we determine from the promissory note terms what your monthly income should have been in order to qualify for the loan at the fully indexed rate. In this way, a factual basis for falsification or alteration may form the basis for a predatory loan claim.
Reverse Redlining. ECOA and FHA (Fair Housing Act), in addition to prohibiting discrimination in any aspect of credit on the basis of age, race, or national origin specifically address the issue of "reverse redlining" as the practice of not denying credit to the members of minority groups, but in-stead, extending credit to members of minority groups on unfavorable terms.
Excessive Points and Fees. The average origination cost on residential mortgage loans above $100,000 is one to two percent. While subprime loans may be somewhat more costly to originate, HUD and the Department of the Treasury noted, "While subprime lending involves higher costs to the lender than prime lending, in many instances the Task Force saw evidence of fees that far exceeded what would be expected or justified based on economic grounds, and fees that were "packed‟ into the loan amount without the borrower's understanding."
Mandatory Arbitration. Mandatory arbitration clauses required, as a condition of receiving a loan that you agree to resolve any and all disputes arising out of the loan through arbitration, rather than litigation. HUD and the Department of the Treasury found that "mandatory arbitration may severely disadvantage . . . borrowers. Because of the potential for such clauses to restrict un-fairly the legal rights of the victims of abusive lending practices, [HUD and Treasury] believe that Congress should prohibit mandatory arbitration. . . ." In many cases, these clauses also contain a waiver of substantive rights under the Truth in Lending Act, such as the right to attorney's fees.
C. California Consumer Protection Law
The Business and Professions Code prohibits the making of false or misleading statements in-tended to induce any person to dispose of real property, or enter into any other related obligation, and making untrue or misleading representations regarding the terms and payment obligations of loans, including representations regarding the payment rate, the duration of initial interest rates, the duration of initial monthly payments, the inclusion of prepayment penalties, the ability to waive (or not waive) prepayment penalties, the payment shock that borrowers were likely to experience, and, generally, the risks associated with such mortgage loans.
Generally, the use of false representations to gain an unjust advantage or any act or omission that the law specifically declares to be fraudulent, constitutes active or constructive fraud (Cal. Civ. Code). Such misrepresentation may include statements made to borrowers regarding the interest rate, payments, the duration of initial interest rates, and the risks associated with the particular mortgage loan offered to the borrowers.
"[T]he adjustment of interest rates or monthly payments shall consider factors which can reasonably be deemed to affect the ability of borrowers to meet their mortgage obligations."
Myth: Mortgage lenders and servicers don't really want to foreclose
This is fundamentally false. Almost every residential mortgage loan was securitized into a mortgage-backed security (MBS), and the [originating] lender is no longer a player. The "lender" has been replaced by a loan servicer or servicing agent (servicer) who operates under a pooling and servicing agreement (PSA) for the investors in the MBS. Legally, the servicer has only the authority specified in the PSA.
Generally, as long as a loan is performing, the servicer receives an income from servicing a loan.
FACT: When a loan goes into default (borrowers stop making payments), the typical PSA requires that the servicer continue to make the interest payments to the investors; if there is a shortage of money in the impound account for taxes and insurance (or if an escrow account was not required), the servicer has to pay the taxes and insurance. In some cases, the servicer also has to maintain the property (borrowers walked away).
FACT: The servicer continues to be responsible for these expenses as long as the loan is still considered "collectable." But once the loan is considered uncollectable the servicer can stop paying the interest to the investors (but not the tax and insurance).
The servicer might want to foreclose and have the property sold at a trustee sale because the NOD prevents the servicer from having to make the interest payments to the investors. Further-more, when the property is sold at the trustee's sale, the servicer can recover the funds the servicer has had to make to the investors. In addition, the servicer can pocket "expenses" for attorneys' fees, appraisal fees, late payments, and assorted fees.
YOUR STRATEGY
Hire us to conduct a legal analysis and "opinion" (citing applicable statutes supported by federal case law with likely UDAP claims) of your residential mortgage loan documents.
Our thorough analysis will determine whether your loan documents disclose any specific federal statutory or regulatory violations and/or violations of California's unfair and deceptive practices laws (UDAP), and if so, we will suggest applicable claims and defenses so you can protect your home from foreclosure.
OUR FEES
We charge a flat fee, comparable to one-hour legal fee, for all documents pertaining to a single transaction (closing) date (i.e., first and second loans equal a single transaction).
If you email us at inbox@americanrescuesolutions.com, we will send you a sample legal analysis/opinion to evaluate. You will then understand why our attorney-generated legal opinion will give us the basis for the claims and defenses needed to assert to protect your home from foreclosure.
This product is currently only available for homes located in California.
