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Disclosures are important to home loans

Residential real estate transactions can lead to many negative and financially costly surprises, especially when there is a lack of disclosure. Borrowers and purchaser must carefully review loan documents to learn about financial pitfalls and avoid them.

During the pe-recession housing boom in Arizona and across the country, borrowers suffered the consequences of loans with no money down, prepayment penalties and negative amortization. However, new rules enacted by the federal government require disclosures on home loans to help prevent these practices.

A closing disclosure document must conspicuously display the loan's basic terms. In large print and boxes, the document should contain the amount of the loan, its interest rate, monthly principal, any owed interest, whether there is a prepayment penalty and if there is a balloon payment.

Lenders may create a loan package using the customary forms for residential notes and mortgages. A rider may be attached with prepayment penalty terms.

Lack of disclosure or missing important loan terms can lead to unwanted and expensive fees or unfavorable mortgage terms. For example, borrowers may be charged an early pay off penalty for loans even if the notice and deed of trust specifically prohibited these penalties. In one case, a consumer was charged an EPO of $10,000 after his loan was sold to a different lender.

Borrowers may also choose lenders other than Fannie Mae and Freddie Mac for more attractive loan deals and for financing of condominiums. But, these deals may require higher interest rates.

Terms that were not disclosed, such as prepayment penalties, may be invalidated. Insufficient disclosure may constitute grounds for fighting the lender on compliance with terms or payment of fees.

An attorney can help buyers review loan documents and real estate agreements to assure their legality and do not penalize the borrower or purchaser. They can help negotiate terms that protect the purchaser's interest or pursue litigation against illegal agreements or practices.

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