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Foreclosure Defense: Stated Income Loans, Income Overstated and TILA Rescission
June 1, 2008 · 1 Comment
Remember that rescission doesn’t mean you give back the house. It doesn’t even mean you have to give back the money to the lender against whom you are rescinding — THAT obligation commences AFTER the lender admits to the rescission or it is otherwise decreed and then it is reduced by the refunds of points, interest, closing costs you paid plus damages and attorney fees you suffered as a result of the issues raised in this post.
Rescission might not even mean you owe any money at all to the lender. It could mean that the mortgage lien is extingunished and so is the note. And unless the party coming into court or the auction as a “representative” of the lender can prove that they have received their instructions and authorization from a party who is authorized to give those instructions, then they lack authorization, they lack legal standing and they are probably committing a fraud on you, the court and everyone else.
Most lawyers have a knee jerk reaction in advising clients about challenging foreclosure when the stated income application contains mistatements or outright fraud. They tell their clients that they better not open this box because of all the criminal and civil liability issues that will arise from the deceptive information stating the income of the borrower. WRONG! Fear tactics and unimaginative and uninformed lawyers are allowing people to lose their homes when they should be keeping their homes and getting paid damages for what was done tot hem. This advice they are giving is in most cases completely incorrect.
The lender has an obligation to verify the income. As such, when it failed to verify the income it waived it’s right to compain that the income was wrong because the courts say that the lender did not reasonably rely on the stated income, as set forth in the mortgage application. And when they failed to verify the true value of the property, as they were supposed to do to protect your interest as their “client”, they knowingly assisted in defrauding you out of the benefit of the bargain you thought you were getting. In fact, you got a home worth less than the mortgage indebtedness you signed at closing and you didn’t know it because they didn’t want you to know it.
This might seem overly lenient or liberal” to some, but it isn’t. In all cases but a few, the application is filed out by someone other than borrower and the person filing out the application puts down the income necessary to justify the the amount of the loan sought without even asking what the real income is. If the subject comes up most borrowers tell the mortgage broker or representative that their income is not what is stated on the application, and they are told they must submit the application “as is” in order to get the loan.
The old “don’t worry, everybody is doing it” is true — that is exactly what was happening. And the responsibilities of the “lender” who was in actuality a mortgage broker which was not disclosed (as required by law) to the borrower is unchanged: they have a fiducuiary duty to the borrower to present the borrower with a loan program (with everybody’s role and compensation and risk fully disclosed) that will work given the economic, income and liability circumstances of the borrower. We have many stories where people were given mortgage loans in the millions based upon zero actual income or close to zero.
Investment speculation was promoted through encouragement of speculators to take ARM financing and then flip the homes in the ever growing housing market and explosion of housing prices. Advertising for refinancing, first home financing, HELOCs (which are now often dischargeable in bankruptcy and are fully within the right to rescind the transction stated in Truth in lending Act, encouraged every man, woman and child to become further and further in debt, diverting capital from the economy, the marketplace and main street to a select few on Wall Street, which is why some salaries now for the same job require greater qualifications at less pay than they were getting with fewer qualifications and far more pay 20-30 years ago.
See the following article from the Bakruptcy Law Network for more information. BLN is a very good source on a wide variety of issues but the old expression that “he works with a hammer tends to look at everything as a nail” comes to mind. Most people petitioning for bankruptcy are not protecting their interests in the best possible way, in my opinion, but of course your own attorney is supposed to know what is best.
First of all if you are going to file for bankruptcy, given the fact that the mortgage and note have been transferred many times more than once, there is a question about who the creditor is and WHETHER THE CREDITOR HAS BEEN PAID ALL OR PART OF THE “MISSING” PAYMENTS.
If some investor bought your loan and the investMent banking house paid some of the payments to the investor to whom was sold a CDO or CMO, then the loan servicing company that is posting notice of sale or suing you for foreclosure has no idea whether the payments have been made on YOUR note or not.
FRANKLY YOU DON’T EVEN KNOW IF A THIRD PARTY MADE YOUR PAYMENTS TO THE REAL CREDITOR ON YOUR MORTGAGE AND NOTE AND IN ALL PROBABILITY SOMEONE DID PAY SOME PORTION OF THE RETURN DUE TO THE OWNER OF THE CDO THAT HAS AN INTEREST IN THE MORTGAGE ON YOUR PROPERTY.
Thus the creditor you name IN A BANKRUPTCY PETITION OR LAWSUIT OR PETITION FOR EMERGENCY INJUNCTION TO STOP THE SALE OR EVICTION should be a contingent creditor, the amount due on the note should be a contingent liability, and the so-called security aspect is also contingent.
Remember that rescission doesn’t mean you give back the house. It doesn’t even mean you have togive back the money to the ldner aginst whom you are rescinding — THAT obllgation commences AFTER the lender admits tot he rescission or it is otherwise decreed and then it is reduced by the refunds of points, interest, closing costs you paid plus dmages you suffered as a result of the issues raised in this post.
Rescission might not even mean you owe any money at all to the lender. It could mean that the mortgage lien is extingunished and so is the note. And unless the party coming into court or the auction as a “representative” of the lender can prove that they have received their instructions and authorization from a party who is authorized to give those instructions, then they lack authorization, they lack legal standing and they are probably committing a fraud on you, the court and everyone else.