Business Law 101 / MORTGAGES (Continued)

By Albert L. Kelley, Esq.

When a bank makes a loan, they are required to comply with numerous laws and regulations:

TILA: Many homeowners are familiar with the term “Truth in Lending Act” (TILA). TILA requires the lender to provide copies of a notice to each borrower on the note advising the true costs of the transaction and advising them of right to rescind the note and mortgage. The basis of the law is to allow homeowners to shop for the best deal. Failure to provide this notice is an absolute defense, allowing the borrower to rescind the note and mortgage during the foreclosure proceeding.

HOEPA: This is actually a subsection of TILA and requires the lender to give a notice to the borrower at least three days before closing that advises the homeowner that they do not have to enter the loan and that they could lose their house and any money put into it. HOEPA does not apply to purchase money mortgages, but rather to refinances. Both HOEPA and TILA can be asserted against any assignee of the note and mortgage.

RESPA: This is an anti-kickback statute that prevents the bank from giving anything of value for the provision of settlement services. This includes paying a mortgage broker a premium for getting the borrower a mortgage rate higher than what the homeowner qualified for or if the bank pays for services such as title searches or postage and then charges the homeowner more than they paid for the service.

In the event of a default by the mortgagor, the mortgagee may proceed to foreclosure. Some people believe that foreclosure is a request to get the property back. That is not the case. The term foreclose means to take away the homeowner’s right to redeem their property. In most mortgages, there is a clause that says if the mortgagor defaults on payments, the mortgagee may accelerate the payments and demand payment of the entire balance. To enforce this, the mortgagee files a foreclosure action in Court, asking the Court to enter a judgment awarding them a sum of money for the balance due. The judgment does not turn possession of the property over to the mortgagee. Rather, the Court orders that the property be sold at auction to the highest bidder to pay up to the amount of the money judgment to the mortgagee. When the judgment for foreclosure is issued, the Clerk must post a Notice of Sale in a newspaper of local circulation. The Notice must run once a week for two consecutive weeks and must describe the property and location of sale. The last publication must be at least five days before the sale.

The auction is held between 20 and 35 days after the judgment. While previously the sale occurred on the courthouse steps by the Clerk of the Court, today many foreclosure sales are handled online. Anyone may bid on foreclosed property, however, the mortgagee, as the holder of the judgment, is allowed to use his judgment as a credit against the purchase price. In other words, when others are bidding on the property, the mortgagee may bid up to the amount of their money judgment and not be required to pay any money for the purchase. If the sale exceeds the amount of the judgement, the bank gets paid in full and the remainder is paid to the homeowner (subject to the claims of other creditors).

Al Kelley is a Florida business law attorney located in Key West and previously taught business law, personnel law and labor law at St. Leo University. He is also the author of “Basics of Business Law” and “Basics of Florida’s Small Claims Court” (Absolutely Amazing e-Books). This article is being offered as a public service and is not intended to provide specific legal advice. If you have any questions about legal issues, you should confer with a licensed Florida attorney.

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