TILA and Purchase Money First Mortgages: From FAQ

QUESTION:

I want to confirm something with you:
1.  TILA does not apply to purchase money.
2.  TILA apply to refinance of mortgage.
Is that correct?

ANSWER: This is a far more complex question than it appears. Normally it would be simple. But in the context of the mortgage meltdown of 2001-2008 there are more questions than answer. Yes, on its face, purchase money first mortgages are excluded or exempted, depending upon how you want to look at it. BUT there are a number of factors that take the exemption away, in my opinion. to wit:

  1. Combining with a HELOC is generally considered to be a single transaction that removes the exemption
  2. Refi’s are covered by TILA
  3. Illegal transactions are void ab initio: this was a securities issuance scheme — for the fraudulent issuance of securities based upon the revenue and security of an instrument that was converted (a) from negotiable to non-negotiable and (b) from secured to unsecured
  4. This was a table funded loan wherein the source of funding and the fees paid were NOT disclosed. We are getting answers now that say we cannot have the information as to who the holder in due course is or who the source of funding was because it is “confidential.” The source was a non-chartered, non-regulated, non-registered lending entity for whom the exemption was intended. The “pretender lender” rented its charter to an unauthorized entity for a fee of usually 2.5%, abandoned its underwriting standards in favor of whatever the source of funds wanted, and conspired in a predatory “lending” scheme that was in fact a Ponzi scheme involving unregulated securities, undisclosed insurance, and commitments to apply payments on the note to the obligations of others.
  5. While certain remedies might not be available under TILA, the inquiry doesn’t stop there. TILA and Reg Z make it abundantly clear what the “lender” duties are — and in every case we have seen the lender abdicated its fiduciary duties, disbanded its appraisal review committee and basically rubber stamped anything the funding the source wanted.
  6. The pooling of loans in and of itself might remove all exemptions and exclusions. Carol Asbury has hypothesized that the note and mortgage effectively lost their original identity as soon as they were “pooled.” I agree.
  7. Remember that the economics were turned on their head.
  • Before the securities fraud in the mortgage meltdown, banks were underwriting their own loans and putting their own balance sheets at risk.
  • So they wanted loans that would be likely to be repaid, which meant that the borrower was credit worthy which in turn meant that the interest rate was fairly low.
  • In a secondary market, if the bank wanted to offload some risk to adjust its balance sheet it might make a small profit or take a small loss for a 5%-6% loan.
  • During the securities fraud period, the funding sources wanted loans with extremely high interest rates (at least nominally stated on the note) — sometimes exceeding 16.5%. With teaser rates and ignoring the fact that the first adjustment would take the payment higher than the gross income of the “borrower” they could “qualify” the “borrower” based upon the first payment which could have been as low as a a few hundred dollars on a multimillion dollar loan.
  • By overloading the “pool” of loans with “toxic waste” (tranche z) loans and hiding them under a thin layer of traditional loans, the secondary market became a wild west of selling loans for 2-5 times the funding amount. Thus a $300,000 mortgage bearing an interest rate of 16.5% could be sold for more than $900,000 because it was buried in a pool of mortgages that hid the real nature of the pool.
  • By selling loans whose expected life was far less than what was represented and whose quality was near zero compared with the 30 years investors thought they were buying with triple AAA ratings, investment banks were creating “profits” of such excess that it was possible to quadruple the income of mortgage brokers, appraisers, title agents, and “pretender lenders.”

7 Responses

  1. There is a battle going on over whether the explicit wording of the statute and rules on rescission should be re-interpreted to mean that the debtor must offer or tender the money back to the “lender.” Of course it seems that any such interpretation would be directly contrary to the statute so that is a battle that I assume the pretender lenders will lose. Then there is the question of whether even if the Judge wanted to agree with them, how retroactivity would apply. As it stands now notice of rescission under TILA requires the pretender lender or the lender, if one exists, to immediately send a satisfaction of mortgage, the original note cancelled OR file an action for declaratory relief. They don’t want to file an action for declaratory relief because they lack standing to bring any action. They don’t want to acknowledge that the transaction is over. They don’t want to convert their “secured” loan into an unsecured debt. They don’t want to start an action where the borrower can bring claims, affirmative defenses and defenses.

  2. people need to use the tila rescission and get the jurisdiction and venue changed on the case to a federal court as district courts are not suppose to rule on federal procedures after the tila rescission is exercised. I am not a lawyer, but am i right???

  3. google your States Recall Procedures.
    anyway,
    Recall is the power of the voters to remove elected officials before their terms
    expire. It has been a fundamental part of our governmental system since 1911 and has
    been used by voters to express their dissatisfaction with their elected representatives.

    Time to fight back and show them that political power belongs to the people… In our area the Antelope valley, thats exactly what we teach people to do, evict the evictors of of office.www.avenue-s.us/services.html

  4. <>

    Is this still true? So far I have not found anyone who could agree with this.

  5. Jose, look to ‘recoupment.’ It may apply for defenses otherwise unavailable where statutes of limitation would control, had you been the plaintiff. Have an attorney confirm this, AND/OR consult the Bankruptcy books available in your local law or court library!

    You’re fortunate to have a bankruptcy judge who cannot be budged and actually gives you the protection and relief you went there for in the first place!

    My Ch 13 BK judge, though well respected and considered “tough but fair,” showed his true hand when he admitted openly in court that he NEVER questioned creditor legal fee applications. Talk about giving creditors’ counsel carte blanche and green light to egregiously heap on fees! The lender’s powerhouse attorney knew this already, for they had hired the judge’s former law clerk to run in with their outrageous legal bill (where it seemed every pleading had to be reviewed by 3 attorneys as well their supervisor).

    I did not appreciate the futility of wasting $5,000 on a well-regarded attorney to fight $50,000 in outrageous and unconscionable legal fees that the powerhouse law firm had run up fending off my unsuccessful efforts to show my lender committed extrinsic and other fraud, etc.. I expected fairness, but sadly found bias and the matter pre-judged instead. Not the professional ethics and impartiality I had been advised to expect from this highly respected judge.

    Meaning no disrespect to the many consumer lawyers here, I find our bankruptcy system needs a major overhaul. Can’t tell you the number of times I as plaintiff was left to fight for crumbs left after trustees and attorneys in a feeding frenzy cleaned out the debtor’s substantial assets, because they were given preference.

    Allan
    BeMoved@AOL.com

  6. In this article you make mention of one Carol Asbury. I did a search on your site for her and found nothing. Can you give me a link to any articles she has contributed? Thanks & Keep up the good work! John R.

  7. how does statute of limitations work once someone files for bankruptcy, We had no trouble asserting our TILA rights in Bankruptcy court, the judge did not budge to the attempts by the foreclosure vipers.

    Also for those of us who had a money purchase deal, would bankruptcy blow away any restriction that may be apparent due to the statute of limitations?

    If in the mortgage meltdown scenario there were fees and commissions paid that were intentionally undisclosed to the consumer, would the one year statute of limitations still rule, or the settlement may be assumed not to have yet been 100% consummated?

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