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Defenses In a New York Foreclosure Based On Violations Of Truth In Lending Act And RESPA
If you are experiencing financial difficulties and cannot pay your monthly mortgage, an experienced Long Island foreclosure attorney can discuss possible solutions and even defenses to a foreclosure action should one be filed against you. While there are many different defenses that may apply to your situation, two such defenses include violations of the Truth and Lending Act or the Real Estate Settlement Procedures Act.
Truth in Lending Violations
Congress enacted the Truth in Lending Act (TILA) in 1968 to inform consumers about the cost of credit so they can make informed credit decisions and to protect them against unfair credit practices. It was passed to remedy fraudulent practices in the disclosure of the cost of consumer credit, assure the meaningful disclosure of credit terms, ease credit shopping, and balance the lending scales weighted in favor of lenders. Beach v. Ocwen, 118 S.Ct.1408[1] (1998). To fulfill its objectives, TILA requires that creditors disclose credit terms and costs at the various stages of open- and closed-end credit transactions.
TIL creates several substantive consumer rights. Section 1640(a)(1)[2] gives consumers actual damages for TIL errors in connection with disclosure of any information. Section 1640(a)(2)(A)(iii) gives consumers statutory damages of twice the amount of any finance charge, up to $2,000.00 for errors in connection with violations of Section 1635 or 1638(a)(2) through (6), or (9), and the numerical disclosures, outside of the $100.00 error tolerance.
Under TILA, when a mortgage transaction is considered, the lender must provide a borrower within three days of receiving a loan application a number of disclosures, of which the main disclosure is the Truth in Lending Disclosure. This disclosure identifies the terms of the loan, APR, Amount Financed, Finance Charge, Total Payments, and the Payment Schedule. These disclosures are to be as accurate as possible. The purpose of providing the disclosures is so that the borrower will be better able to compare loans from different lenders.
When the loan is ready to close, and the borrower has the “final signing”, the lender is required to provide the borrower with a Final Truth in Lending Disclosure. This disclosure, along with the final settlement statement and the Right to Cancel Notice, are the key elements in a foreclosure defense, when arguing a TILA violation.
Defensive Right to Rescind for Violations of TILA
There are several remedies when a lender violates TILA including statutory damages. For a homeowner facing foreclosure, the most important remedy is rescission, the process of legally canceling a loan, as it is the only remedy that offers an ability to stop a foreclosure. A TILA violation may be used by a borrower as a defense in a foreclosure action if a lender does not provide a consumer with the required disclosures.
In 1995, Congress created a defensive right to rescind when a lender sues a consumer to foreclose the mortgage. See Section 1635(a) & (i)[1995], Reg. Z 226.23(a)(3) & (h) [1996]. The Section 1635(i) amendment triggers the consumer’s defensive right to rescind[3] when the creditor overstates the amount financed by more than $35.00, or errs in the Notice of Right to Cancel form, and the claim is raised to defend a foreclosure. Although the right to rescind can be a powerful tool, it has restrictions including the need to rescind the loan three years from the date on which the loan was made.
In 2015, the United States Supreme Court[4], in the case of Jesinoski v. Countrywide Home Loans, Inc., provided as follows:
“A borrower exercising his right to rescind under the Act need only provide written notice to his lender within the 3-year period, not file suit within that period.”
RESPA Violations in Long Island Foreclosure Defense
Real Estate Settlement Procedures Act (RESPA) is the “other” main effort of Congress to regulate lending. RESPA is designed to protect the borrower by ensuring (1) fair settlement proceedings through early disclosure of settlement costs, (2) the prevention of “kickbacks” and “illegal referral fees” that increase borrowing costs to the consumer, and (3) the prohibition of certain acts that increase borrowing costs.
While RESPA contains many protections for consumers, the section that may be most useful for borrowers facing foreclosure is Section 6, which pertains to a qualified written request. A qualified written request, is a written letter sent to the mortgage servicer that:
-Requests information pertaining to the mortgage loan, or
-Requests that the services correct an error such as misapplied payments.
The correspondence must include, or enable the servicer to be able to identify, the name and account of the borrower, as well as a statement of the reasons why the borrower believes that the account is in error or a detailed description of the information the borrower is seeking. (12 U.SC. § 2605[e][1][B][5]). Any written document is sufficient although the request may not be written on the payment coupon or other payment method supplied by the servicer. (12 U.SC. § 2605[e][1][B]).
Once the servicer receives the request, the servicer must acknowledge receipt of the correspondence within five days. Within 30 days the servicer must:
-Correct the amount, including crediting any late charges or penalties, as well as transmit a written notification of the correction
-Provide the borrower with a written explanation or clarification that includes a statement of the reasons why the account is correct, or
-Provide the borrower with a written explanation of why the information that was requested in unavailable.
If the servicer fails to take one of the required actions within the time limit, under RESPA a borrower may recover:
-Actual damages
-Additional damages not to exceed $2,000 if there is a pattern of servicer noncompliance
-Attorneys fees and costs.
-A RESPA violation does not prohibit the lender from initiating or moving forward with a foreclosure, but a qualified written request can be a tremendous asset for you and your attorney if you are facing foreclosure as the request requires the services to provide valuable information about the account.
Recent Amendments
In October 2015, the Consumer Financial Protection Bureau’s integrated the disclosures required by TILA and RESPA, known as “TRID” for short. TRID applies to most closed-end consumer credit transactions secured by real property and constitutes an end to the Truth in Lending Disclosure Statement, Good Faith Estimate, and HUD-1 Settlement Statement with the creation of a “Loan Estimate” and “Closing Disclosure.”
The Loan Estimate combines elements of the Truth in Lending Act Disclosure Statement and Good Faith Estimate into a consolidated estimate of the anticipated life of loan costs of financing a real estate purchase. The Loan Estimate is required within three days of receipt of the loan application and no less than seven days before consummation of the loan. The Closing Disclosure combines elements of the Truth in Lending Act Disclosure Statement and the HUD-1 Settlement Statement. The Closing Disclosure is required at least three days prior to consummation of the loan and cannot be delivered on the same day as the Loan Estimate. Because there are no exceptions to this three-day rule, minor changes which could have been made at the closing table now require new disclosures and a new three-day waiting period. The new TRID forms are an improvement in terms of prioritizing and explaining the cost information that consumers care most about when selecting a mortgage and any amounts in excess of the disclosed amounts which exceed the tolerances must be refunded to the consumer within sixty calendar days.
Unfortunately, Congress mandated the combination of the TILA and RESPA disclosures, but it did not amend TILA or RESPA to clarify the liability for violations of the new disclosures. Because TILA generally permits private suits for violations of its mortgage disclosure requirements but RESPA does not, this silence raises concerns regarding the manner in which borrowers can sue lenders for TRID violations, an issue to be addressed further by Congress and the courts in the months and years to come.
Contact an Experienced Long Island Bankruptcy Attorney
If you are unable to pay your monthly mortgage, it is important to speak with a skilled greater Long Island and New York area foreclosure attorney who can review your individual situation based federal and New York laws and determine if any TIL or RESPA violations occurred, perhaps providing you with a foreclosure defense. Call the office of Ronald P. Weiss today at (631) 296-0361 in order to discuss the specifics of your financial situation and possible foreclosure defenses.
