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TJ, Esq.
TJ, Esq., Attorney
Category: Real Estate Law
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Experience:  JD, MBA
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I had a fixed interest rate loan, without a balloon payment,

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I had a fixed interest rate loan, without a balloon payment, which was modified to a lower fixed rate, but that added a huge ($300,000) balloon payment. The $300,000 amount was not disclosed in the modification agreement other than to state there might be an amount that needed to be paid at the end of the term. The term was not extended. Can you tell me if this situation required TILA disclosures?
Hello and thank you for allowing me the opportunity to assist you.

While refinancing a mortgage requires TILA disclosures, such disclosures are not required for mortgage modifications. A refinancing occurs when the original note is satisfied, and is replaced with a new note. If that is not the case here, and the only change was a lower interest rate and different amortization, then TILA disclosures are, I'm sorry to say, not required.

I am truly sorry to give you this bad news, but please understand that it would be unfair to you (and unprofessional of me) to provide you with anything less than an honest response. However, if your concerns were not satisfactorily addressed, then please let me know, and I will be happy to clarify my answer. I do ask that you rate me based upon whether I answered your question, and not based upon whether the answer was good news or bad news. Your positive feedback is greatly appreciated. Thank you for using our service!

If you would like to direct additional legal questions to me in the future, then please type "To VAMD" in the subject line of your question.
Customer: replied 3 years ago.
Would you please point me to the specific section of which law covers this? Thanks
Hi again.

The relevant statute is Section 226.20, which you can review HERE. It explains what subsequent disclosures are required, and defines a refinancing. It specifically excludes modifications when it states:

The following shall not be treated as a refinancing:
(1) A renewal of a single payment obligation with no change in the original terms.
(2) A reduction in the annual percentage rate with a corresponding change in the payment schedule.
(3) An agreement involving a court proceeding.
(4) A change in the payment schedule or a change in collateral requirements as a result of the consumer's default or delinquency, unless the rate is increased, or the new amount financed exceeds the unpaid balance plus earned finance charge and premiums for continuation of insurance of the types described in § 226.4(d).
(5) The renewal of optional insurance purchased by the consumer and added to an existing transaction, if disclosures relating to the initial purchase were provided as required by this subpart.


I hope that helps, and I wish you luck.
Customer: replied 3 years ago.
I had previously read that statement also. Can you let me know, are there other laws which might apply to my situation? I will re-enter the site and ask for you if it might be of benefit, and thanks
Hi again.

Unfortunately, based on what you describe, it doesn't sound like you may have much of a legal argument. You could argue that the lender's failure to disclose the balloon payment amounts to a misrepresentation and/or the lender to not act in good faith when modifying the loan. To be honest, those arguments are uphill battles, and would most likely get thrown out of court rather quickly. At best, XXXXX XXXXX delay a foreclosure.

Another problem is that $300,000 is a lot of money. Accordingly, the lender may argue that you should have known that the payments you were making would have left a sizable balloon payment at the end. In other words, the lender may argue that any reasonable person could do the math and see that the mortgage would not be repaid without a balloon.

I wish that I could give you better news, but I owe it to you to be honest.
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