The Truth in Lending Act (“TILA”) has been widely touted as a way for a homeowner to defeat foreclosure and to even wipe out their entire mortgage. TILA is a very powerful consumer protection statute; however, it is extremely unlikely that TILA will wipeout your mortgage. This is an area where you should be very careful, because some mortgage rescue scams claim to use TILA. While it is possible to use TILA to get rid of a mortgage entirely, it requires you to combine a TILA claim with another claim such as fraud or bad acts by the mortgage company or loan originator.
It is important to understand what TILA requires for the borrower. Assuming that you have the right to rescind, you still have an obligation to return the loan proceeds to the lender. This presents a particular problem, when the loan was used to refinance another mortgage or to cash out equity.
For example if you refinanced an earlier loan, then the new loan proceeds were used to pay off the old loan. This means that all of the loan proceeds flowed to a third party, your old bank. When you rescind the new loan, you cannot force your old bank to give back the loan proceeds and restore your old mortgage. This can put you in a difficult position.
Another example is a refinance to cash out home equity. When the economy was better, many people cashed out equity to pay off other debts or to finance another purchase. This is another situation, where you would have to be able to either come up with cash or find a new loan.
This is important to keep in mind, because a judge has the discretion to condition your rescission on your ability to return the loan proceeds. Typically this takes the form of permitting the lender to keep their lien on your property, until you can return the loan proceeds. This is problematic, because the goal of the rescission is to free yourself from a bad loan.
The solution to the return of proceeds problem is to combine a TILA rescission with another cause of action. You can reduce or eliminate your obligation to return the loan proceeds if you are able to force the lender to set off the amount you owe. You can do this if there are allegations of fraud or other bad acts by the loan originator. If you can prove fraud or other bad acts, then you are entitled to damages. The amount of the damages can serve as a setoff against your obligation to return loan proceeds. If you are able to do this, then you can get rid of a bad mortgage.
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