Purchasing a home is often one of the biggest investments that a person will make in their lifetime. However, sometimes there are errors that may occur during the purchasing process. It is important to understand your rights as a purchaser when it comes to handling any errors that may occur during the purchase of your home.
A mortgage lender, also known as a “mortgagee,” is a person, group of persons, or a company, that provides money to a borrower, also known as a “mortgagor,” to purchase a home. Typically, mortgage lenders are financial institutions, such as a bank or mortgage company. However, there are some individual mortgage lenders. There are also government-sponsored mortgage lenders, such as the United States Department of Housing and Development’s (“HUD”) Federal Housing Administration (“FHA”) loans or the United States Department of Veteran Affairs (“VA”) loans.
In exchange for the borrowed money, the mortgagor pledges the purchased home as security for the loan, often in the form of a real estate lien against the home. The mortgagor then makes payments to the lender in order to satisfy the terms of the loan that was made and pay off the lien. Once all of the obligations of the loan are fulfilled, the title to the home then transfers to the borrower.
Another party that may play a role in the purchase of a home is a mortgage broker. Unlike a mortgage lender who provides money for the loan, a mortgage broker is a party hired by the borrower. The broker’s role is to assist the borrower by researching multiple loan options from many lenders and helping them find the best loan for them.
Finally, a real estate agent will also be involved in helping the borrower find a property to purchase, as well as work with the mortgage lender and broker. As can be seen, with so many parties involved in the purchase of a home, it is not difficult to see why legal disputes often arise.
What Legal Issues can Arise when Dealing with Mortgage Lenders?
As noted above, numerous legal issues can arise when dealing with a mortgage lender, most commonly due to a breach of the loan agreement. A loan agreement is similar to any other contract; this means all breach of contract remedies are available, should a party breach the contract.
Common examples of legal issues that may arise when dealing with a mortgage lender include, but are not limited to the following:
- Foreclosure: The most common legal issue that arises between a mortgagor and mortgagee is when the mortgagor is behind on making payments on the mortgage, which leads to foreclosure. In short, foreclosure is the process where the lender takes the borrower’s property and sells the property at a public auction in order to satisfy the borrower’s debts;
- Mortgage Fraud: Mortgage fraud occurs when false or incorrect information is provided on a loan application. Basically, if you lie on your mortgage loan application, you may be charged with the crime of mortgage fraud. Additionally, mortgage lenders may also be charged with mortgage fraud, such as forging a mortgage contract. If a mortgage lender commits mortgage fraud, the mortgage borrower may use the mortgage loan fraud as a legal defense to foreclosure;
- Predatory Lending: Mortgage lenders sometimes target susceptible buyers, such as first-time borrowers or elderly borrowers, and offer them loans at abusively high interest rates or unreasonable loan terms; or
- Discrimination: Mortgage lenders are prohibited form discriminating against borrowers based on their race, gender, religion, national origin, or other federally protected characteristics under the Fair Housing Act and Equal Credit Opportunity Act. Both federal acts serve to protect a borrower from being discriminated against while seeking out mortgages or loans.
As can be seen, there are many disputes that may occur with a mortgage lender. Therefore, it is important to carefully review your mortgage lending agreement before signing the agreement. Thus, you should feel free to ask questions and voice any concerns that you might have to the mortgage lender, in order to prevent any of the aforementioned problems from occurring.
What Should I do if I Have a Dispute with a Mortgage Lender?
If you have a dispute with your mortgage lender, it is important that you first review your original mortgage loan document to fully understand your rights under the contract. Your original mortgage loan document contains relevant information, such as your rights and obligations under the contract, as well as the mortgage lender’s duties and obligations.
Next, you should gather any other relevant documents related to the mortgage contract and the sale of the home, including: sales contracts, mortgage contracts, communications between brokers, lenders, real estate agents, and the purchaser, or any other legal documents. After gathering all relevant documents and reviewing your original mortgage agreement, you should contact the mortgage lender and see if they can resolve the dispute that you have with them.
This is an important step, as some contracts require that you exhaust all of your available administrative remedies before pursuing legal action against the mortgage lender. It is important to keep good documentation of any and all communications that you make with the mortgage lender, such as any emails or letters that you send.
Finally, if you are unable to resolve your dispute with your mortgage lender, then you may consider taking legal action against them. Typically, the claim that you will file against the mortgage lender will be based on a breach of contract theory, where you will seek to recover any economic losses that you may have suffered.
Additionally, breach of contract remedies may include remedies in equity, such as:
- Cancelling the mortgage contract;
- Rewriting the mortgage contract to better reflect the parties agreement; or
- Ordering specific performance under the contract.
For example, in the case of an accidental foreclosure, the court may order that the foreclosure process and result be rescinded.
Can You Sue a Mortgage Lender for Negligence?
As mentioned above, if your mortgage lender commits negligence, you may sue your mortgage lender. Examples of this can include where they negligently fail to include terms in the loan agreement that were agreed to by both parties, or if they breach their fiduciary duties. Additionally, you may be able to sue your mortgage lender if they or one of their officers negligently made false representations in order to induce you into making an otherwise unreasonable loan.
Should I Hire an Attorney if I have a Mortgage Lender Dispute?
As can be seen, there are many disputes that may arise with a mortgage lender during the process of purchasing a home. Further, the real estate process is often a complicated process involving numerous parties. Therefore, it may be in your best interests to seek out a well qualified and experienced mortgage attorney to help guide you through the process of obtaining a mortgage and purchasing a home.
An experienced mortgage attorney can help you review loan documents, assist you in contract negotiations, as well as represent and file a legal claim on your behalf against the mortgage lender, should any disputes arise.