Monday, April 20, 2009

Discount Fees with No Discount

That is a legal argument that is being used to stall, and perhaps prevent, foreclosures here in New Jersey. We came across this story, although it had been out for some time, titled Westwood lawyer's legal efforts may stop N.J. foreclosures in the Star Ledger. While the legal aspect itself is interesting, we were shocked (but should not have been) to learn that the New Jersey Mortgage Bankers Association shares an office with the New Jersey Mortgage Brokers Association. We knew that these parties were aligned, but not intertwined. But let's jump into the article -

A young Westwood attorney is pursuing a simple legal argument that, if upheld by New Jersey courts, could stop many mortgage foreclosures throughout the state.

The argument is this: If, at closing, borrowers paid a discount fee to a mortgage broker and didn't get a reduction in their mortgage interest rates, then the mortgage is invalid and cannot be foreclosed.


The claim might seem outlandish, maybe even arrogant, but mortgage bankers are obviously concerned. Their lobbyists have asked the Legislature to change the language in the so-called Lenders' Liability Law (LLA) because, even as the bankers concede in a brief, the wording might be interpreted to support Denbeaux's argument.


Any payment given to a mortgage broker beyond an application fee and discount points -- a fee that results in the reduction of the mortgage interest rate -- would be, Denbeaux argues, illegal.

If banks pay the illegal fees to mortgage brokers out of borrowers' funds then, under the Consumer Fraud Law, the transaction is void, Denbeaux says. The mortgages can be rescinded and, if there is no underlying mortgage there can be no foreclosure.

Of course the lenders are fighting this. Interesting to read about someone finding the loopholes that are in the borrowers best interest. We know that there are legal teams that scour for loopholes in the lenders best interest. Best close of the borrower loopholes ASAP.

While we do not agree with keeping people in properties they can not afford, or letting people have their mortgages wiped away from a loophole. It is good for everyone to see the sausage making that the mortgage industry really is.

1 comment:

Anonymous said...

the stupid deadbeat borrowers should be renters in the first place. They bid up prices to stupid levels becasue they did not care or did not value anything since they did not earn it.
They have forced pruident buyers who value their time and hard earned savings to wait for a few years. Prudent buyers hold these freeloaders as well as thee Real Esttae industry responsible for this debacle along with greenscam and bernanke.