Equal Credit Opportunity Act Question

We get questions submitted through the site all time and we try to answer as many as we can. This one on the Equal Credit Opportunity Act warranted a post to give a complete answer. Most questions can be answered in “Reply” Comment, but this like many others deserves a full airing.

Here’s the Question:

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My husband and I have been working on a streamline refinance of our home. After over six months, and an LO reassignment we were having difficultly getting in touch with the individuals working on our loan. after several phone calls and emails I was finally able to get in touch with the LO assigned to our loan and he said he had never hear our names or seen our loan. After he performed some research while on the phone with me he discovered our loan had been cancelled three week prior and flood insurance issues were sited as the problem (the property is a condo). We have paid for and supplied flood info from the condo management more than once and the last we heard from the processor she was actively working on it. My question is, do we have grounds for legal action after our loan was cancelled without notification? This isn’t a direction we would like to take however, we lost months of our time, we lost money and now we may have lost the opportunity to refinance at a lower rate. (It has been nearly two months we still have not received any formal notification).

Thank you for your time,
Mary

My Answer:

Mary to answer this appropriately you need to know I’m not an attorney…so this is NOT legal advice.  Get an Attorney or at least get your advice from a bona fide source.  This is just my opinion…now with that said…here goes.

Equal Credit Opportunity Act

There is a Federal law called the Equal Credit Opportunity Act which applies in your case.  You even signed a document at loan application saying you know about the law and you know your rights under this law.  But sadly 99% of those who apply for a mortgage every year never read these documents.

So now is the time to dig out that notification from your loan application package (you did get a copy of you loan application package including all the legal disclosures, right?)  Read what is called the ECOA Disclosure…however most of these disclosures do not cover Regulation B of the ECOA which is directly on point for your question.

Regulation B

The germane parts of Regulation B are how the law requires notification of denial or modification of the mortgage application.

The law states the lender must notify you (the applicant) in writing telling you what action the are taking and why…e.g. denial for insufficient flood insurance, in your case.

Here’s a look at the Top Half of a typical Statement of Credit Denial, Termination, or Change which every lender I’ve ever worked for sends out immediately once the decision is made even though the law requires it go out within 30 days.

As you can see, there are many “reasons” for taking action on a application…and they even have blank check boxes to add any that are not preloaded into their mortgage processing software.

They must also tell you what regulatory agency they oversees their compliance with ECOA and Reg B.

They must also inform you that you have the right to a copy of the appraisal report regardless of whether credit was extended or not.  Of course, you will have to request this in writing.

I’ll bet you didn’t know that, eh?

Here’s a look at the Bottom Half of a typical Letter of Denial…where they explain the process of requesting your appraisal, their regulatory agency, and any credit repositories they used.  You can also see a company representative must sign and date this letter in order to track compliance and I’ve seen many system actually put check boxes to indicate how this denial disclosure was transferred to the client; Mailed, Delivered, or E-mailed.

So, to get back to answering your question…

Now that you know the law Mary, you’ll have to ask yourself if you think they broke this law.

Did you get a “Denial Letter” within 30 days informing you of the change of status to your application?

It sound like you didn’t and that could give you grounds for legal action. I don’t know the penalty for violations of Regulation B, but they could be severe which could help you negotiate a larger settlement.

Of course, for all of this to work you’ll need to spend money on a good real estate attorney with no assurance of a victory. In the end, it may just be too risky or expensive to exercise your rights.

Either way come back and let’s us know how things turned out.

Good Luck!

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Author: Rob K. Blake

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