Every now and again, a potentially significant story manages to slip through the cracks, barely noticed by anyone. A recent Dow Jones article by Jilian Mincer -- "Mtge Lawsuits Could Bail Out Some Borrowers" -- is just such an article. The only reason I even knew about it was because I spoke with the reporter and was quoted in it.As the post notes, this isn't hypothetical; people are already winning lawsuits. And for obvious reasons, while it's not great to owe $250,000 in unsecured debt, it's better than losing your house.
It is a fascinating tale that I suspect won't be ignored for long. For those few people familiar with the Federal Truth-in-Lending Act (TILA), this won't be much of a surprise. To everyone else, read on.
What happens if a lender fails to comply with the TILA rules? The borrowers are allowed to RESCIND THE LOANS AND VOID THE MORTGAGES ON THEIR HOMES. The mortgage lender is then just another unsecured creditor, who must get in line behind everyone else who may have filed a lien on the property. Who ever files first (Credit card, auto finance, doctors, etc.) has first priority.
Certainly, it's something you should look into if you owe money on a resetting 2/28. Fair is fair, and more than a few of the subprime lenders weren't playing fair.
