Can't Afford Your Home Loan Payments? One Lawyer's Solution

By Gabriel Traverso
Mortgage Credit Problems Columnist

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For many homeowners with bad credit the rising mortgage payments from hybrid ARMs and other alternative loans might spell disaster. If you're in this boat you might find something in common with other borrowers who found an escape hatch in their loans.

For many consumers best thing to do with an adjustable rate mortgage when payments start to rise is to refinance into a traditional fixed-rate loan. If you don't you might find that the rising payments cause more trouble and your bad credit could get worse--not to mention the possibility of foreclosure. However, a lawyer in Northern California found a way out for many of her clients that might also help you with your mortgage troubles.

Home Loan Help

The Truth in Lending Act of 1968 requires that all mortgage lenders provide borrowers with a right-to-cancel form, which informs the borrower that there is a three-day period in which to cancel the home loan. Pamela Simmons, a lawyer in Soquel, California, found that many of her clients' lenders had failed to properly fill this form out. If a lender does not properly indicate when this three-day period begins and ends the cancellation period can actually be extended to as much as three years. Borrowers in this situation may be able to rescind (withdraw) their loan and have closing costs and other fees deducted from the balance.

Keep Your Bad Credit Out of Trouble

This particular loophole may not apply to you--you will need to check with someone for legal advice--and it only applies to a mortgage refinance on your primary residence. Additionally, if you are able to cancel the loan you will need to find another mortgage so be prepared to shop around for a refinance loan. However, if you are able to take advantage of Ms. Simmons' tactic then it could provide some much needed relief and help prevent your bad credit from getting any worse.

The San Francisco Chronicle: Finding a Legal Escape Clause

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