DEBTOR/CREDITOR LAW

Federal Law Used to Avoid Foreclosure

The Equal Credit Opportunity Act prohibits discrimination by lenders on the basis of race, color, sex, national origin, marital status, age, religion or receipt of public assistance. Technical violations of the act by lenders have been used by borrowers to delay or avoid mortgage foreclosures.

Lenders who violate the act can be sued for actual damages, punitive damages of up to $10,000, court costs and attorneys fees.

The following are examples of violations:

• Source of income. Asking for all sources of income. If a lender asks for the source of an applicant's income, it must state that the applicant does not have to mention alimony or child support unless the applicant wants the bank to consider it when it decides whether to extend credit.
• Age, Race, etc... Considering age, race, sex, etc. when evaluating the applicant's credit worthiness. However, the lender may ask for the applicant's immigrant status.
• Neighborhood. Considering the type of neighborhood in which the applicant lives.
• Marital Title. Asking for the applicant's title, i.e. Mr., Mrs., Ms., etc. without stating that providing this information is optional.
• Co-signing. Requiring spouses of married loan applicants to sign a promissory note, even though the applicant is fully qualified for credit.

  However, a lender offering unsecured credit may require a spouse to co-sign if the applicant relies on jointly owned property and the bank reasonably believes that it needs the spouse's signature to reach the property under state law.

  Lenders who offer secured credit can require a spouse's signature if the applicant relies on the secured property and the bank reasonably believes that it would need the spouse's signature to foreclose on the property.

• Children. Asking about an applicant's intentions to have children or birth control practices. However, the lender can ask for the number and ages of the applicant's dependent children.
• Life Insurance. A covert policy of requiring certain types of life insurance before issuing loans.
• Advertising which suggests discriminatory preferences or discourages applications in a selective manner.
• Improper Notification. Whenever a lender receives a completed loan application or changes the terms of a credit account, it must notify the applicant of its credit decision, in writing, within 30 days.

  The notification must include the specific reasons for the creditor's decision and an ECOA notice informing the applicant of his or her rights under the act.