Foreclosure is a process in which the creditor will be trying to recover the debts when the debtor fails to clear the loan in time. The Creditor can recover the loan amount by selling away the secured property. Foreclosure sale of the assets will be treated as a valid one only if the sale price is a valid one.
The bank WF sought to recover the unpaid debts from creditors and decided to foreclose on the loans. The debtors claimed that the foreclosing by the WF Bank is invalid because the debtors issued a credit note to financial services SA of worth $51,300 and created a security interest for SA in the property. The interest was transferred to Company GE by Financial services SA.The bank WF bought the loan from GE and WF sought a relief from foreclosure because debtors failed to pay the required payments. On failure to make payments bank WF declared a foreclosure and bought the property, defendants claim that the price paid for the foreclosure is very low.
A foreclosure will be treated as an unfair under the following circumstances:
1. Foreclosure will be treated as an unfair in case the information is never sent to the debtor and the creditor presses with the foreclosure option.
2. Intimation regarding the foreclosure is made public.
3. The bidding is conducted in a biased manner and the price paid for the sale is extremely low when compared with the fair market price.
Thus, the aforementioned reflect the conditions where foreclosure can be treated as an unfair.
The foreclosure process is expected to realize the amount required for the debt to be paid off. However, it is not necessary that the sale price need not match the fair market value or the debt amount. The chances of getting the fair market value for the foreclosed property will be better in case when the competition in the bidding is high and the appraiser's valuation of the property meets the fair market value. Thus, it can be concluded that foreclosure sale have to realize market price.
In case the amount obtained through the note is less than the amount owed on the note then the lender can file a suit in the court to obtain a deficiency judgment. Then the court issues a deficiency judgment which enables the lender to collect the balance amount in phases from the debtor.
The Home Ownership Equity Protection Act (HOEPA), 1994:
HOEPA is a continuation of the TILA Act and issued in order to create home loan products which can be rated as high interest and higher end home loan products. HOEPA rules are applicable to loan products which bear high interest rates and contain high fees for processing.
HOEPA bans any balloon payments on the loan products and prohibits short term loans containing balloon payments. In case the lender fails to disclose any of the details as required, the borrower can sue and obtain damages.
A couple, MJ and EJ were the owner of a home. Their home went into foreclosure when they defaulted in making the payments. At that time they received a letter from the representative of RM. In the letter, RM offered a repurchase plan and based on the plan Js sold the house to RM. RM collected fees of $30,000 for the transaction towards processing fees. When Js declined to pay, RM tried to evict them out of the house. The agreement did not mention the words 'mortgage' or 'lease'.
Yes, this transaction will receive protection under TILA and HOEPA. Js can file a suit for breach of TILA and HOEPA requirements against RM because the agreement did not make mention of any processing charges. In order to fall under the TILA and HOEPA requirements it is not necessary for the agreement to mention the words such as mortgage, lease or equity.
The agreement between RM and Js concealed the processing fee and thus becomes eligible for the HOEPA or TILA violations.
Person A and Person B owns a house worth $200,000 and had 100 percent home loan equity. At the time of recession, A and B lost most of their savings. They entered into home loan mortgage with Bank A for $150,000 for starting a new business. The loan agreement came with a period of ten years.
However, the agreement did not mentioned that if the fails to pay make the payment, they would lose the house. A and B wanted to rescind the loan two weeks after entering into the agreement.
Truth in Lending Act (TILA):
Truth in Lending Act, 1968 was enforced to regularize the lending market in US. It restricts the credit making companies by asking them to make all the information pertaining to the credits to be disclosed to customers. TILA requires disclosures such as the principal amount, the interest rate charged by the creditor, the loan duration.
The Home Ownership and Equity Protection Act, 1994 is offered as an extension to TILA by enhancing its protective mechanisms. Any borrower can find protection under HOEPA, if the loan taken by him:
1. Contain the Annual percentage rate which is greater than 8% (in case of first mortgage) and greater than 10% (in case of second mortgage).
2. Contains total fees which is greater than 8% of the total loan amount or set dollar amount, whichever is larger.
The loan taken by A and B is covered under the TILA provisions. The interest rate on the loan was 12% which exceed the limit provided in HOEPA. Thus, the loan qualify to protect the borrower under the provisions of HOEPA.
Thus, it can be concluded that the home equity loan falls under the provisions of HOEPA.
A mortgage agreement is not finalized until all the TILA related paper work has been received by the borrower within a week. The borrower can rescind the contract even after a period of three years if proper documents are not provided to the borrower.
In this case, the borrowers can rescind the loan because they were not offered information regarding the chances of losing the house if payment was delayed or defaulted. As the proper information was not provided to the borrowers, the borrowers can rescind the contract within a period of three years.
Thus, it can be concluded that the borrowers can rescind the loan with the bank.
If the bank would have provided all the information to the borrower before the loan was completed and all the other facts would have been same, the borrowers could not rescind the contract.
Thus, it can be concluded that if the bank provides all the required information to the borrowers, the borrowers cannot rescind the loan.
If the contract is not rescinded by the borrower and the payment is defaulted after 4 years. The bank can auction the house and recover the balance payment from the borrower.
Thus, it can be concluded that bank can recover the remaining amount of loan the borrower.