The Federal Reserve has proposed a troubling change that could all but eliminate one tool homeowners have to fight mortgage foreclosure, a recent post from Credit.com's blog highlights. The tool is called rescission. Here’s what it is and what might happen to it.
What Is Rescission?
Rescission is a process that more or less offers homeowners a chance to get out of a mortgage if they can prove it was fraudulently or deceptively originated. Specifically:
- Deceptive & fraudulent mortgage lending: One phenomenon reported frequently during the subprime housing boom of a few years ago was lenders who allegedly lied about specific terms of mortgage loans (whether that meant concealing balloon payments, misrepresenting the nature of adjustable rate mortgages or something else), or encouraged borrowers to do so (usually by inflating their income level). Unsurprisingly, many borrowers who signed such mortgages ended up unable to make payments at some point.
- Beginning of the foreclosure process: After a few months of failing to make mortgage payments, most homeowners will receive notice from their lenders of foreclosure proceedings. Naturally, this is not pleasant for anyone and can lead to serious stress and financial trouble for affected families.
- Limited protections in Chapter 13 bankruptcy: While some homeowners are able to find relief from foreclosure proceedings in bankruptcy court, many others find that bankruptcy only addresses some of their problems – after all, the bankruptcy court cannot modify the terms of a mortgage loan.
- Rescission’s foreclosure prevention: One of the few options available to many homeowners facing foreclosure, then, has been the process of rescission, which works like this: if a homeowner provides a written statement to his lender that his loan was originated fraudulently and can prove as much in court, the court may rule to cancel the terms of the current mortgage. The borrower can then take on a different loan from a different lender to repay the balance to the original creditor.
Essentially, the process of rescission allows homeowners to trade out fraudulent mortgage loans for more affordable, honestly originated ones.
The Fed’s Proposal to Change Rescission
But, as CreditBloggers reports, the Federal Reserve has proposed a change to the rescission laws that would require mortgage borrowers to repay the entirety of their fraudulent mortgage loans and only then challenge the loan’s legality.
As many consumer advocates have pointed out, this would remove much of the foreclosure-prevention potential the current rescission process offers and would prevent most ordinary homeowners from hanging on to their houses.
To learn more about the proposed rule change and the consumer advocates fighting against it, please visit the article linked to above. To learn more about your potential for relieving your mortgage debt with rescission, contact a debt-relief lawyer in your area.