There's a way to cancel a mortgage loan

Having buyer's remorse about a mortgage? It can pay to scrutinize the fine print.

Amid the housing-market turmoil, homeowners have been turning to a little-known process for renegotiating or exiting a loan. Even minor paperwork slip-ups can be enough to get a "rescission" (basically, a loan cancellation) based on the Truth in Lending Act, a federal law requiring disclosure of a loan's key terms.

How does it work?

Under a rescission, while a homeowner still owes the principal, the lender won't be able to foreclose. Plus, all loan-related fees and interest are subtracted from the principal, which can mean substantial savings for the borrower.

After a rescission, the borrower must pay off the loan, typically with a new mortgage, or sell the house.

It isn't for everyone. Borrowers have three years after the loan is made to make a rescission claim. It is available only to people who refinanced their original mortgage on their primary residences.

Until recently, some judges were loath to cancel loans where the only violations were paperwork mistakes, says Ira Rheingold of the National Association of Consumer Advocates, a group of consumer attorneys. Now that foreclosures are mounting, "courts have gotten more sensitive" to violations, he says.

Many small foul-ups can qualify.

Lawyers say such discrepancies aren't unusual, especially given how aggressive lenders have been in recent years.

— By Amir Efrati,

The Wall Street Journal