Channel 12
Investigative Reports is interested in following up on issue
regarding truth in lending violations by hard-money
lenders. These loans would be secured by the debtor's home,
but the lender failed to comply with Truth in Lending,
specifically Regulation Z. Rick Dubruhl asked me to find
some folks who have been harmed. Please let me know if you
see anyone who may fit this category.
Here is a quick review of the issues related to Truth In
Lending and Regulation Z. This is a portion of a pleading
that I filed in one client's chapter 13. In this case the
lender gave the Debtor less money than stated on the Deeds
of Trust, plus several other defects.
1) Must provide the homeowner with the three day
cancellation disclosure as required by the Truth in Lending
Act TILA, 15 U.S.C. 1601, et seq.)
2) Must provide the homeowner with the required Truth in
Lending disclosure form containing certain key information
about the contract, annual percentage rate, finance charged,
amount financed and payment schedule.
3) Must provide the homeowner with the required 2
copies of the Truth in Lending notice.
4) Must comply with Regulation Z of the TILA - if the
APR at consummation will exceed by more than 10 percentage
points for the subordinate lien mortgage loans, the yield on
Treasury securities having comparable periods of maturity to
the loan's maturity (as of the 15th day of the
month immediately preceding the month in which the
application for the extension of credit is received by the
creditor, or total points and fees exceed 8% of the total
loan, or $480 for the calendar year (Section 226.32(a)(1).
5) Must provide the homeowner with the notices set
forth in Regulation Z: Section 226.32(c).
6) Balloon payments in 3 years - which is specifically
prohibited under Section 226.32(d)(1)(I) and (ii) (Reg Z and
HOEPA).
7) In addition, the Note provides for a late fee of $30
per day, which equates to an increase in interest rate after
default - such increase is prohibited by Section
226.32(d)(4).
8) TILA also prohibits a creditor engaging in a pattern
or practice of extending high-cost mortgages based on the
consumer's collateral without regard to repayment ability,
including the consumer's current and expected income,
current obligations and employment. A violation is presumed
if there is a pattern or practice of making such mortgage
loans without verifying and documenting consumer's repayment
ability. In Runner's situation - they were well aware of
the Debtor's inability to repay the loan, the lack of
employment, and other relevant considerations described in
TILA. They made two loans, therefore were well aware of
the Debtor's financial condition. Creditor failed to
provide Debtor with a copy of the uniform statement of
settlement costs required under RESPA. Section 129(h) of
TILA, 15 U.S.C. § 1639(h), and Section 226.32(e)(1) of
Regulation Z, 12 C.F.R. § 226.32(e)(1).
9) Despite two written requests Creditor has failed to
provide the Debtor with an accounting of all fees and costs
associated with the origination of the two loans. Creditor
argues that the high interest rate is necessary because of
the junior lien position - the reality is that the high cost
of these loans is not necessary to protect the lender,
instead the terms are so onerous that they precipitate
default and foreclosure.
10) The Trustee named on the Deed of Trust is also the
beneficiary. Arizona Revised Statutes: 33-803 sets forth
who can be a trustee under a Deed of Trust. The creditor
does not fit any of the criteria. In addition, 33-803 B
specifically prohibits the beneficiary from acting as the
trustee.
The civil liability set forth in Section 130: if a
creditor fails to comply with the requirements of the TILA,
they are liable for twice the amount of the finance charge
involved, but not less than $200 or more than $2,000. In
that these loans fail to also comply with TILA's
requirements for high-cost mortgage loans, they are liable
to the Debtor for all finance charges and fees paid to the
creditor.
Notes from Diane Drain: here is a
link to a brochure written by the Arizona Attorney General's
Office on
Predatory Lending.
Beware of "Bailout Deals" - Some
states, Illinois for example, have new law to protest
homeowners from "bailout deals," a type of mortgage fraud.
It requires written details of services form mortgage
bailout firms and gives the homeowners more flexibility if
they want to cancel an agreement.
So what are these "bailout
deals"? Homeowners who are struggling to make their
mortgage payments decide to "bailout" and transfer their
house by deed to a third party. The intent is that
this transfer will be for a short time. They homeowner
will get back on their financial fee and repurchase the home
with a new mortgage. Unfortunately, many homeowners
never get their property back. The person they
transfer it to refuses to sell it back. Another
option is the "lease with option to repurchase" scam.
Again the homeowner deeds the property a third party, with
the intent to buy it back through a lease arrangement.
Of course, the new owner finds every reason possible to
default the lease and throw the old homeowner, now called
the "tenant", out of their home. Some Arizona courts
have found a basis for changing the lease-purchase agreement
into an equitable mortgage. But, avoid this problem
all together - never enter into an agreement to transfer the
title on your home unless you intend on completely giving up
ownership.
