Wednesday, January 2, 2008

Homebuyers: How To Cancel A Mortgage

Homebuyers: How To Cancel A Mortgage

By Amir Efrati | 25 December 2007

Having buyer's remorse about a mortgage? It can pay to scrutinize the fine print.

Amid the housing-market turmoil, homeowners have been increasingly turning to a little-known process for renegotiating or exiting a loan. Even seemingly minor paperwork slipups can be enough to get a "rescission" (basically, a loan cancellation) based on the Truth in Lending Act, a federal law requiring disclosure of a loan's key terms.

Under a rescission, while a homeowner still owes the principal, the lender won't be able to foreclose. Plus, all loan-related fees and interest that were paid are subtracted from the principal, which can mean substantial savings for the borrower.

After a rescission, the borrower must pay off the loan,
typically with a new mortgage, or sell the house. Other times, lenders will modify the terms of a mortgage instead of doing a rescission. It isn't for everyone. Borrowers have just three years after the loan is made to make a rescission claim. It is available only to people who refinanced their original mortgage on their primary residences.

People who haven't refinanced can still use a bevy of state laws to seek damages from lenders, mortgage brokers, real-estate agents or appraisers who committed similar mistakes (or outright fraud) during loan origination. Rescissions don't require filing a lawsuit, but hiring a lawyer is recommended. A partial directory of lawyers with experience is at http://www.naca.net.

Consumer lawyers say rescissions are on the rise. Pamela Simmons of Simmons & Purdy says the Soquel, Calif., law firm has done more than 300 this year, up from 200 last year. Until recently, some judges were loathe to cancel loans where the only violations were paperwork mistakes, says Ira Rheingold of the National Association of Consumer Advocates, a group of consumer attorneys. Now that foreclosures are mounting, "courts have gotten more sensitive" to violations, he says. Many seemingly small foul-ups can qualify. If the APR, or annual percentage rate, is off by a fraction of a percent between the preliminary and final loan documents, the loan may be rescindable. Same goes if the total in fees is off by more than $100 (or $35, if the borrower is facing foreclosure).

Lawyers say such discrepancies aren't unusual, especially given how aggressive lenders have been in recent years. In late 2005, Bruce and Patricia Green refinanced their $800,000 home in Pacifica, Calif. But Mr. Green, an audio-visual contractor, says that because he didn't study the loan documents carefully enough at the signing, the monthly payment ended up being $1,000 more than his mortgage broker verbally promised.

Mr. Green's lawyers found a snafu: At the signing, the couple wasn't given two copies of a document informing them of their right to cancel the loan for up to three days. That was enough to get the loan canceled, saving the couple about $60,000, Mr. Green says. They then got a loan with better terms from a different lender.

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Normxxx    
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