It helps, if you want to win a case, to know the definitions of the terms you are going to use. A wise man once said, he who defines the terms controls the conversation. Well, to better understand what a loan violation is, you have to understand the case law behind lender practices and know what is permissible. But even then, just knowing the law isn’t enough. You also have to search out the documents that law pertains to.
A forensic loan audit is the only sure way to know where loan violations are within a mortgage document. Most of the violations that occur in a loan will be in the closing documents. That means you need three things:
- The borrower’s copies of mortgage documents
- A list of all applicable laws and associated penalties
- A loan auditor to review the documents and analyze them to identify the violations
A professional loan auditor will perform a comprehensive document review and outline all the problem areas in the loan. If there are any loan violations then the forensic loan audit will uncover them. A reputable loan auditor will refund your money if no violations are found. You can’t beat that.
The Home Mortgage Disclosure Act, or HMDA, is a piece of legislation passed in 1975 that requires lenders to report public loan data. The public data is used to ensure that lending institutions are meeting the requirements of the law and meeting the needs of their housing communities.
The Federal Financial Institutions Examination Council (FFIEC) compiles the data from reporting institutions and that data is used to determine trends in lending. Tables are created for each Metropolitan Statistical Area. You can find this data on the FFIEC website.
As an example, the FFIEC website offers a table showing reasons for refinance denials. While this information doesn’t show specifics regarding individual cases, it could shed some light on general trends regarding lending habits and that could help you in your negotiations with specific lenders or in cases of litigation where lender violations are an issue.
The FFIEC website is a great place for additional research in pursuing the rights of homeowners.
If I were a banker and I told you that I was going to fix a violation so that you don’t have to worry about it, would you let me? The law is quite clear on this point. A lender cannot fix a violation in retrospect. And if you don’t believe me then at least take the word of a banker:
You can’t fix this type of violation. You have closed the loan and advanced the money so the best option is to document the error, train the loan officer(s) and move on. Do not rewrite the loan because the customer has the right to rescind this loan because of the HOEPA violation. If you rewrite the loan, you are only trying to take away their rights. Courts have shown this is not acceptable and you can’t take away someone’s rights.
This applies to HOEPA violations as well as RESPA and TILA violations. A bank or lending institution cannot fix a violation or rewrite the loan. You have a right to rescission under federal law and if the bank rewrites the loan without your knowledge or permission they are taking away your rights. If that happens to you then we recommend finding an attorney who specializes in real estate and mortgage law. They’ll be able to help you identify lender violations and other red flags.
While it generally true that a holder in due course is not liable for claims made against the seller of a property, there are times when a holder in due course could be liable. If an assignee to a mortgage takes control over the loan when there is a clear violation of the contract under applicable law then that assignee could be liable. Here’s a situation that could lead to a rescission just as if the originator of the loan were still servicing the loan.
Mortgage Company A underwrites a loan for $250,000 to a borrower in January 2008. In August 2009, Mortgage Company A sells the loan to Mortgage Company B. In September 2009 the homeowner loses his job. Mortgage Company B attempts to collect payments for 90 days then begins the foreclosure process. In February 2009, the homeowner discovers a TILA violation after conducting a forensic loan audit. Mortgage Company A failed to provide the necessary disclosures to the homeowner. Is Mortgage Company B now liable and can the homeowner seek a loan modification based on this situation?
The answer, clearly, is “yes.”
We are not attempting to provide legal advice here, but the question is a matter of whether or not Mortgage Company B should have known about the violation prior to purchasing the loan. Since recognition missing required documents is something that a simple review would have uncovered, it can be argued that Mortgage Company B did not do its due diligence. As a holder in due course on the mortgage documents in question, Mortgage Company B could be liable and the homeowner may be able to request a loan modification.