The Truth About TILA

What’s the Next Step? Consult with Neil Garfield

For assistance with presenting a case for wrongful foreclosure, please call 520-405-1688, customer service, who will put you in touch with an attorney in the states of Florida, California, Ohio, and Nevada. (NOTE: Chapter 11 may be easier than you think).

Victims can receive up to $125,000 in cash or, in some cases, get their homes back. But the review has already been marred by evidence that the banks themselves play a major role in identifying the victims of their own abuses, raising the question of whether the review is compromised by a central conflict of interest.”

Editor’s Comment and Analysis: There have been so many questions and misconceptions about TILA that I thought it would be a good thing to summarize some aspects of it, how it is used in forensic examination and the limitations of TILA. Note that the absence of a prohibition in TILA or the apparent expiration of TILA does not block common law actions based upon the same facts and some states have more liberal statutes of limitations. TILA is a federal law called the Truth in Lending Act. It’s principal purpose according to all accounts and seminars given on the subject is to provide the borrower with a clear choice of lenders with whom he/she wants to do business and clear terms for comparison of terms offered by each lender. It is also designed to smoke out undisclosed parties who are receiving compensation and it has real teeth in clawing back such undisclosed compensation.

Undisclosed compensation is very broadly defined in TILA so it is fairly easy to apply to anyone who made money resulting from the purported loan transaction, and the clawback might include treble damages, attorneys fees and other relief. Note that rescission does NOT mean you must offer up the house (“give it back”) to the lender. The lender, if there was one, gave you money not a house. rescission is a reversal of that transaction which means you must tender (according to the 9th Circuit) money in exchange for cancellation of the transaction. If you follow the rules, a TILA rescission eliminates the note and mortgage by operation of law, so while you have the right to demand and sue for return of the note as paid and satisfaction of the mortgage (release and reconveyance in some states). Unless the “lender” files a Declaratory action (lawsuit) within 20 days of your demand for rescission, the security is gone and can be eliminated in bankruptcy.

Use of the rescission remedy can be employed in bankruptcy actions as well where the Judge has wide discretion as to what constitutes “tender” (including a payment plan). Some Judges have interpreted the statute as it si written which does not require tender. The 9th Circuit disagrees.

As to the statute of limitations, it simply does not apply if the “lender” has intentionally mislead the borrower, committed fraud or otherwise withheld information that is deemed fundamental to the disclosures required by TILA. This is the most common error committed by borrowers and their attorneys. In most cases the table funded loan is “predatory per se” and gives you a leg up on the allegation of fraud or misrepresentation at closing.

Fraud may be fraud in the inducement (they told you that even though your payments would reset to an amount higher than your household income has ever been, you would be refinanced, get even more money and be able to fund the payments through additional equity in the house).

Fraud may be in the execution where you signed papers that you didn’t realize was not the deal you were offered or which contained provisions that were just plain wrong. If you thought that you were getting a loan from BNC and the loan was in fact funded by another entity unrelated and undisclosed, then your legal obligation to repay the money naturally goes back to the the third party. But the presence of the third party indicates a table funded loan, which is predatory per se; and the terms of repayment are different from what was offered or what was agreed to by the lender acting through the investment banker that was creating (but not necessarily using) REMICs or trusts. In plain words the mortgage bond and the prospectus, PSA and other securitization are at substantial variance from what was put on the note, including the name of the payee on the note and the name put on the security instrument (Mortgage or deed of trust).

The office of the controller has published a series of papers describing the meaning and intent of TILA and to whom it applies, even pre Dodd-Frank.

For example, it describes “Conditions Under Which Loan Originators Are Regulated as Loan Underwriters.” Thus the use of a strawman is expressly referred to in the OCC papers (see below) and there are specific indicia of whether an entity is in fact a loan underwriter, which is the basis for my continual statement that a loan originator is not a lender (pretender lender) and the very presence of a loan originator on the paperwork is a violation of TILA tolling any state of limitations.

If the loan originator is not a bank or savings and loan or credit union, then the highest probability is that the name on the note and the name on the mortgage is wrong. They didn’t loan the money. Your signature was procured by both fraud in the inducement and fraud in the execution, because it was predicated upon that payee giving a loan of money. “Arranging” the loan from a third party doesn’t count as being a lender. It counts as being a licensed broker or the more vague term of loan “originator.” The arguments of the banks and servicers to the contrary are completely wrong and bogus.If they were right, for purposes of collection and foreclosure that the origination documents were enforceable then that would mean that there would be a window immediately following closing where you could not actually rescind or even pay off the obligation because the originator has no right, justification,, power or excuse to execute a release and reconveyance. The loan already belonged to someone else and the paperwork was defective, which is why investors are suing the investment bankers alleging principally that they were victims of fraud: they were lied to about what was in the REMIC, lied to about what was going into the REMIC, and then even the claimed paperwork on defaulted and other loans were not properly assigned because they never started with the actual owner of the obligation.

Thus the theory put forward by banks and servicers and other parties in the foreclosure scheme that the origination documents are enforceable falls flat on its face. Those documents, taken on their face were never supported by actual consideration from the named parties. If the investment banks weren’t playing around with investment money deposited with them by managed investment funds, the name of the REMIC or group of investors would be on the origination documents.

In the case where the originator is a bank, one must look more closely at the transaction to see if they ever booked the loan as a loan receivable or if they booked the transaction as a fee for services to the investment bank. This is true even where mega banks appear to be the originators but were not the underwriters of the loan.

If you are looking for the characteristics of a loan underwriter, versus a loan originator the OCC paper provides a list. In the case of banks the presence of some of these characteristics may be irrelevant in the subject transaction if they treated the “securitized” loan differently through different departments than their normal underwriting process. There such a bank would appear to be a loan underwriter, but when you scratch the surface, you can easily see how the bank was merely posing as the lender and was no better than the small-cap originators that sprung up across the country who were used to provide the mega banks with cover and claims to plausible deniability as to the existence of malfeasance at the so-called closing:

  1. Risk Management Officers in Senior Management: In the case of small cap originators it would be rare to find anyone that even had the title much less acted like a risk management officer. In the case of banks, the presence in the bank of such an officer does not mean that he or she was involved in the transaction. They probably were not.
  2. Verification of employment: There are resources on the internet that enable the bank to check the likelihood of employment, as well as the usual checking for pay stubs and calling the employer. In a matter of moments they can tell you if a person who cleans homes for a living is likely to have an income of $15,000 per month. Common sense plays a part in this as well. This was entirely omitted in most loans as shown by operation “hustle” and other similar named projects emphasized that to retain employment and get out-sized bonuses far above previous salaries the originator employee must close the loan, no matter what — which led to changing the applications to say whatever they needed to say, often without the borrower even knowing about the changes or told “not to worry about it” even though the information was wrong.
  3. Employment conforms to income stated. See above. I have seen cases where a massage therapist making $500 per month was given a seven figure loan based upon projected income from speculative investment that turned out to be a scam. She lost two fully paid for homes in that scam. If normal underwriting standards had been employed she would not have been approved for the loan, the scam would never have damaged her and she would still be a wealthy woman.
  4. Verification of value of collateral. Note that this is a responsibility of the lender, not the borrower. Quite the reverse, the borrower is relying reasonably that the appraisal was right because the bank verified it. In fact, the appraiser was paid extra and given explicit instructions to arrive at an appraised value above the amount required, usually by $20,000. By enlarging the apparent value of the collateral, the originators were able to satisfy the insatiable demand from Wall Street for either more loans or more money loaned on property. In 1996 when they ran out of borrowers, they simply took the existing population of borrowers and over-appraised their homes in refinancing that took place sometimes within 3 months of the last loan at 20% or more increase in the appraisal. That was plainly against industry standards for appraisals and obvious to anyone with common sense that the value could never have been verified. If you look at companies like Quicken Loans you will see on some settlements that they were not content to get overpaid for originating bad loans, they even took a piece of the appraisal fee.
  5. Verification of LTV ratios. Once the appraisals were falsified it was easy to make the loan look good. LTV often showed as 20% equity when in fact the value, as could be seen in some cases weeks after the closing was 20% or more lower than the the amount loaned. Many buyers immediately lost their down payment as soon as they thought the deal was complete (it wasn’t really complete as explained above). Because of the false appraisal, at the moment of closing their down payment was devalued to zero and they owed more money than the home was actually worth in real fair market value terms. Normal industry practice is to have a committee that goes through each loan verifying LTV because it is the only real protection in the event of default. In most cases involving loans later subject to claims of securitization, the committee did not exist or did not review the loan, the verification never happened and the only thing the originator was interested in was closing the loan because the compensation of the originator and their own salary and bonuses were based purely on the number or amount of “closed” loans.
  6. Verification of credit-worthiness of buyers. This is an area where many games were played. Besides the verification process described above, the originator was able to receive a yield spread premium that was not disclosed to the borrower and the investment bank that “sold” the loan was able to obtain an even larger yield spread premium that was not disclosed to the borrower. It is these fees that I believe are subject to clawback under TILA and RESPA. In the Deny and Discover strategy that I have been pushing, once the order is entered requiring the forecloser to produce the entire accounting from all parties associated with the loan, the foreclosure collapses and a settlement is reached. This can often be accomplished in a less adversarial action in Chapter 11.
  7. Verification of income and/or viability of loan for the life of the loan. This has a huge impact on the GFE (Good faith estimate) especially in adjustable rate mortgages (ARMs) and negative amortization mortgage loans (teaser rates). Plainly stated the question is whether the borrower would qualify for the loan based upon current income for when the loan resets. If the answer is no, which it usually is, then the life of the loan is a fabricated figure. Instead of it being a 30 year loan, the loan becomes much shorter reduced to the moment of reset of the payments, and all the costs and points charged for the loan must be amortized over the REAL LIFE of the loan. In such cases the “lender” is required to return all the interest, principal and other payments and other compensation received from all parties, possibly with treble damages and attorney fees. It’s pretty easy to prove as well. Most people think they can’t use this provision because of misstatements on the application. The obligation to verify the statements on the application is on the underwriter not the customer. And the law was written that way to cover just such a situation as this. If you paid 3 points to close and it was added to your loan or you paid in cash those points would substantially raise your effective APR or even stated interest rate if the loan life was reduced to two years. In many cases it would rise the level of usury, where state law provides for that.
  8. Vendor management: This is where even before Dodd-Frank you could catch them in the basket of allegations. The true management of the vendors lay not with the originator but with the investment banker who was selling mortgage bonds. This alone verified that the party on the note and named on the mortgage was an originator (strawman) and not an underwriter. And the accounting that everyone asks for should include a demand for an accounting from the investment banker and its affiliates who acted as Master Servicer, Trustee of a “pool,” etc.
  9. Compliance programs and audits: Nonexistent in originators and the presence of such procedures and employees is not proof that they were part of the process. Discovery will reveal that they were taken out of the loop on loans that were later claimed to be subject to claims of securitization.
  10. Effective Communication Systems and Controls: The only communication used was email or uploading of flat files to a server operated or controlled by the investment banker, containing bare bones facts about he loan, absent copies of any of the loan closing documents. This is how the investment bankers were able to claim ownership of the loans for purposes of foreclosure, bailouts, insurance, and credit default swaps when the real loss was incurred by the investors and the homeowners.
  11. Document Management: I need not elaborate, after the robo-signing, surrogate-signing, fabrication and forgeries that are well documented and even institutionalized as custom and practice in the industry. The documents were lost, destroyed, altered, fabricated and re-fabricated, forged in vain attempts to make them conform to the transaction that is alleged in foreclosures, but which never occurred. The borrowers and their lawyers are often fooled by this trick. They know the money was received, so their assumption was that the originator gave them the loan. This was not the case, In nearly all cases the loan was table funded — i.e., funded by an undisclosed principal access to whom was prohibited and withheld by the servicer, the originator and everyone else. AND remember that under Dodd-Frank the time limits for response to a RESPA 6 (QWR) inquiry have been reduced to 5 days and 30 days from 20 days and 60 days respectively.
  12. Submission of periodic information to appropriate regulatory agencies that regulate Banks or lenders: If the originator did not report to a regulatory agency, then it wasn’t a lender. If it did report to regulatory agencies the question is whether they ever included in any of their reports information about your loan. In most cases, the information about your loan was either omitted or falsified.
  13. Compliance with anti-fraud provisions on Federal and State levels: This characteristic would be laughable if wasn’t for the horrible toll taken upon millions of homeowners and tens of millions of people who suffered  unemployment, reduced employment and loss of their retirement funds.
  14. In house audits to assess exposure for financial loss through litigation, fraud, theft, loss business and wasted capital from failed strategic initiatives: The simple answer is that such audits were and remain virtually non-existent. Even the so-called foreclosure review process is breaking all the rules. But it wouldn’t hurt to ask, in discovery, for a copy of the plan of the audit and the results. The fact is that most banks involved in the PONZI scheme that was called “Securitization” are still not reporting accurately, still reporting non-existing or overvalued assets and still not reporting liabilities in litigation that are even close to reality.

See the rest of the OCC Paper:

TILA Summary Part 1 11-13-12

TILA Appendix Worksheets 11-13-12

TILA worksheets -2 — 11-13-12

Tenant Protection OCC 11-13-12

RESPA and Worksheets 11-13-12

18 Responses

  1. If you were defaulted and cured I suggest you check your title and make sure. the transfer to fc party was filed, make sure the LP was released, and if in a judicial state check to make sure the case was dismissed (can remain open up to 3yrs here without hearings). If the Court case is still open or the transfer to fc party was not filed before LP on title, or if LP was not released you should contact an attorney right away.

  2. IAN, that is what SC was talking about, her area of experience. Since you found out where SC lives you should not have a problem getting her phone number. You could call.

  3. Here’s a topic which I haven’t seen addressed in 5 years on this site; If a foreclosure is initiated, but ultimately “cured”, are we to assume that the servicer has made a claim on the Lender Title Policy, PMI, etc. for insurance payout on the default? Without telling the Trustee for the Trust, if there is one. And what happens from there? Actually, if one falls behind 2-3 months, but pays up prior to a default, are we to assume that payment is applied for on the 61st day, or even the 31st day? I would appreciate any information, no matter how seemingly insignificant. Because I have no information whatsoever. Thanks.

  4. The lender, if there was one, gave one consumer credit and took cash from the other consumer – MUPPETS, One consumer thinks they are buying a house but no they are the unidentified third party investor of an annunity the cash was used for called a NOTE and the investor who purchased the certificates promising payments from the performance of the NOTE they meant the house! Both screwed out of their benefits.

  5. Christine is @Enraged.

  6. David,

    We are something like 6 or 7 years into the foreclosure crisis. Wouldn’t someone have blown the whistle on that already? By the way, i refinanced only from fix to fix, without taking any heloc. I will start doing research on that because it does seem very big. On the other hand, i don’t understand why no one would have brought it up before you.

    Has Garfield ever broached that subject? I haven’t followed his posts much in the past 2 years and before that, i didn’t even know about this site.

  7. David, it’s a good thing I don’t know where you live! I would give a huge hug! Thanks for this into.

  8. Hi Christine,

    Yes – if you look at your amortization schedule you’ll see that for the 1st 10-15 yrs you are paying more interest than principle. If you refi during those years – per the law – they are supposed to “credit-back” or “bring-forward” those credits (payments).

    That is the “un-earned” interest the creditor collected during those years of the loan. It is illegal for the creditor to KEEP those charges because it is considered a “pre-payment penalty.” This is also stated in the FAS140… but more importantly to the consumer – it is in the statutes I mentioned previously. Just go Google those statutes and you’ll see what I am talking about.

    It gets a little complicated to figure out for adjustable arm loans but it doesn’t matter because those folks will have paid even MORE interest thus be due a larger credit.

    The loans are calculated per the “life” of the loan. But how many people actually keep the loan for 30-years? So, throughout a 30-yr mortgage 6.75% interest comes out in the wash – but when you refinance that loan within 3-5-or-10 yrs – then you are paying a MUCH higher rate on interest to the creditor.

    The focus is on the TOTAL FINANCE CHARGE on your disclosure. Divide that by the total months of the loan 360-for 30 yr loan. Whatever that equation amount is – THAT is what you should be charged PER MONTH. This is the same for refinancing as is for default – if someone defaults in 5yrs – that creditor must “recalculate” that loan to reflect the correct “interest rate. That is the key – you agreed to a specific “interest rate” – that’s what congress is clarifying in those laws. So, the creditor must make sure they are charging the correct “agreed” interest rate per the loan docs – no matter if someone is in default or refinances. If the loan is interrupted by refi or default – the creditor must still only charge you the correct agreed interest rate – plus any default charges etc.

    So the family that borrowed 250k @6.75% for 30-yrs – then refinanced or defaulted on the 5th yr – that family would have paid the creditor 97k of interest by paying their NORMAL amortized payment – HOWEVER that is actually 42k TOO MUCH – and the creditor is required per the statutes I’ve shown, to REPAY – or REIMBURSE the consumer for those over-charges. No-matter if they were in default or refinanced…

    The total finance charge on your disclosure docs will show what you should be charged. Check you HUD-1 statement to see if you credited for those over-charges. It should show up on your HUD-1 statement as a “credit” back to you. It probably won’t because they never do – the banks (creditors) keep them in escrow until someone barks…

    I do not know of anyone raising this issue but it is clear per those statutes. TILA is clear – those amounts MUST be credited back to the consumer – if NOT then per (J) of that statute – “…if they violate ANY aspect… it is as-if they NEVER gave the disclosures…” That is a huge statement and unless I am wrong – it gives rise to rescission.

    I wish someone would weigh-in on this because I honestly do not want to give bad info – we all have enough to deal with and don’t need additional hoopla to get stirred up.

  9. David,

    I am not sure I understand. True that when you buy a house, the first year, you pay mostly interests and very little principal. The second year, you pay a little less in interests and a little more in principal and on and on, until you start paying much more in principal than interests, at the 9th or 10th year. So what you are saying is that if you refinance at the 2nd or 3rd year, for example, you have paid more interest than was actually due for those 2 or 3 years and, therefore, you should be reimbursed for it?

    My question then is: do you know of a case, any case, where that was argued by the homeowner and he won? The reason i am asking is because I refinanced 3 times in 6 years but i never received one cent back. Also, isn’t there a statute of limitation on Tila claims? So, if you were not credited the proper overpaid interest the first time you refinance and the second time, are you saying that you should go back to square one and recalculate everything you are owed?

  10. Your disclosure statement shows the total finance charge. Not the total amount paid – just the total finance charge. Divide the total amount charged by the total months of your loan – if its a 30-yr mortgage – it’s 360 months – that equals the actual monthly interest you should have paid. So, if you paid 30 payments – separate the interest & principle and that will be the amount you should have paid. Chances are they charged you for the “full” P&I payment according to the amortization schedule which would be wrong.

    They are required to calculate the interest per balance due – so each time you make a payment the balance (principle) reduces. During the first yrs you’re paying a larger portion of the interest than what is truly due at that time.

    If you look at the law Title 15 – 1639 – you’ll see it is called a pre-payment penalty. It isn’t hard to figure out – but it’s hard to explain like this. If you use a typical mortgage template from excel and do the numbers correctly – you’ll notice they are almost identical to what the bank calculated on your disclosure. However, if you look at the amortization schedule and look at the total amount of interest you paid without the principle – you’ll see a number similiar to the foreclosure mill docs. BUT – if you look at your disclosure docs – take the total finance charge divide that by 360 (30-yr loan) that gives the actual amount you should have paid. Take that number and multiple it by the same number of payments paid – that is the TRUE amount of interest you SHOULD be charged. It sounds confusing but it really is not once you see how to do calculate it. The example I used is merely an example but it is true to the law.

    What’s important is to have your disclosure docs – and have an attorney work the numbers so you can make a clear and accurate before a judge. The way I read the law in those cases where they miscalculate those numbers – per (J) of the TILA – it is as-if the disclosures were NEVER GIVEN – this gives rise to rescission…

    The hard part of the equation is forcing a judge to abide by the law and actually do it. Neil needs to help folks force that issue so it is not abused which causes judges to ignore those who have real causes.

    When they fail to acknowledge the true interest charge – they are violating the TILA.

  11. Odd thing going on. 31 states filing petitions with the White house to secede. What’s up with that? Can they do that?

  12. wow how much do they owe me in unearned interest defaulting after 30 months @ 6.5% and 2800 P+I per month…….30 X 2800 = $84,000 paid

    sounds like i am owed a very large check

  13. Correction – the 97k example is the amount of interest the consumer pays within the FIRST FIVE YRS. So, if they refinance or default at the 5-yr mark – they actually paid 42k TOO MUCH. The law requires that money to be credited back to the consumer – check, cash, etc… Creditorts never credit this money back they set it aside in an escrow account. If the borrower does not bark – the money is taken by the creditor. It is called earned and UNEARNED interest.

  14. i agree with david……its simple math

  15. I think morgage companies and banks should have a rating system. This should be consumer driven, and held to a high standard. This rating should give complete details, including truth, acuracy, intrest rates, foreclosure %, life of loan cost.
    This should be unlike wall street Moody’s standard of pay me for a AAA rating.

  16. Another aspect of TILA is the issue regarding “earned” and “unearned” interest. TILA requires these lenders to recalculate the payments and readjust the amount paid appropriately towards the principle. This is seldom even argued and raised however, it is a huge difference for folks only having the loan from 0-10 yrs. Consumers pay a much higher ratio of the loan in the first 10yrs of their loans. It is NOT the interest rate they agreed to pay. Therefore the law requires that they recalculate those payments to reflect the correct interest rate.

    Example – a 250k loan amount @6.75% interest – 30-yr standard mortgage… The borrowers will actually pay 97k of Interest towards that loan – BUT – that equals a 10.69% interst rate. Therefore, the FED requires them to recalculate the loan – which equals 55k of interest that they SHOULD only be charged over those first 5-yrs. That means the consumer SHOULD be credited with 42-thousand dollars of payments that should be DEDUCTED from the total amount due.

    This is called “unearned” interest – and the banks – lenders – foreclosure mills are NOT prohibited to keep it – they must return it but they NEVER do because no-one checks those numbers.

    This is legally required for EVERY TIME a borrower refinances. The lender is required to “bring-forward” those credits but they NEVER do – anyone checking their HUD-1 will see those credits were never given. The banks always keep it – UNLESS someone forces them to repay it.


    § 1615. Prohibition on use of ‘‘Rule of 78’s’’ in connection
    with mortgage refinancings and
    other consumer loans
    (a) Prompt refund of unearned interest required
    (1) In general
    If a consumer prepays in full the financed
    amount under any consumer credit transaction,
    the creditor shall promptly refund any
    unearned portion of the interest charge to the
    (2) Exception for refund of de minimus 1
    No refund shall be required under paragraph
    (1) with respect to the prepayment of any consumer
    credit transaction if the total amount
    of the refund would be less than $1.
    (3) Applicability to refinanced transactions
    and acceleration by the creditor
    This subsection shall apply with respect to
    any prepayment of a consumer credit transaction
    described in paragraph (1) without regard
    to the manner or the reason for the prepayment,
    (A) any prepayment made in connection
    with the refinancing, consolidation, or restructuring
    of the transaction; and
    (B) any prepayment made as a result of the
    acceleration of the obligation to repay the
    amount due with respect to the transaction.

    NOTICE it states under (3) Applicability to refinanced transactions and ACCELERATION by the creditor… then NOTICE under (3) (B) it states “…any prepayment made as a result of the acceleration of obligation to repay the amount due with respect to the transaction.”

    Folks – that’s what foreclosure is about – “acceleration by creditor” and they are required to recalculate the loan to reflect the CORRECT interest rate. Every foreclosure document I’ve checked thus far – simply muliplies the payments times the months in default – this is NOT ACCURATE and it is illegal but they are getting away with it…

    Then check that against this section

    2010 Amendment note under section
    1601 of this title.
    § 1639. Requirements for certain mortgages
    (a) Disclosures
    (1) Specific disclosures

    You will see they OVER-CHARGING folks in foreclosure and keeping those profits for themselves.

    If I am wrong about this, please someone tell me so I don’t pass-on false information…

  17. ANY contact ingo for ILLINOIS?

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