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Understanding your finances can be tricky. There are rules and regulations for almost every type of financial transaction you can think of. Both state and federal laws regulate financial accounts and proceedings, for everything from simple savings accounts to mortgages and IRA's, as well as the operating procedures of the institutions.

Laws have gotten a lot more complicated and regulated; for the most part they were created in the interest of the individual. Before the Depository Institutions Regulations Act of 1980, interest rates on bank accounts were controlled by the national government. Which did not allow interest to be paid on money market accounts and checking accounts.


Banks

It is important to know what type of “bank” you are using so that in the event that you are ever in a legal dispute with your financial institution over any transactions, you can proceed to educate yourself on their laws and regulations. It is important to know just what your financial institution can and cannot do.

The term "bank" can be used to refer to a traditional bank, a trust company, savings bank, savings and loan, credit union, thrift or a thrift and loan. Each has it's own set of rules concerning the ways in which it can use your money, (how and where they can invest it) and how much power it has. The legal regulations on financial institutions and how they can operate are largely regulated by the state. The federal government however, puts the basic legal restrictions on types of accounts such as IRA's, Trusts, and student loans. They determine the interest rates and the rules on beneficiaries and withdrawals.

IRAs

A law that was recently enacted revised the rules for making charitable contributions from an Individual Retirement Account (IRA). Contributions can be made from an IRA account upon death; you cannot make donations from the IRA while you are living. Before, all beneficiaries of the IRA had to be paid at the same time as the charity, now, the charities can get their money immediately and the other beneficiaries can wait for their distributions. This development allows the charity to receive the funds sooner, but allows for varying distributions for the other beneficiaries, which usually carries tax benefits.

Loans

When you enter into a loan agreement there are also certain legal restrictions that the lender and the signer enter into. The federal government has regulated this process to protect the individual from unfair or fraudulent practice by a loan company. For example, the lender is only entitled to the principle amount of that loan plus any interest repaid. They have no rights to any future money the company or security may make. Borrowing money and gaining interest is the extent of the loan. A loan company cannot come around later claiming that the loan was the reason for the success in the company and, therefore, they should be able to share in the profit. The only profit the loan allows them to claim is in the form of interest.


Real Estate and Mortgages

A mortgage is a loan that is given to individuals to buy a house or land and in exchange, that house or land is provided to the lender as security. In other words the mortgage loan is secured by the house or land. The land has a value so the lender is willing to put up the money, knowing that if they don't get the money they have rights to the land. In theory, the mortgage company actually owns the house until the loan is paid in full.

When a mortgage is out on a home, there are slightly different views as to who actually owns the home. The Title Theory considers the home to be the property of the mortgage company until the mortgage is paid in full. The Lien Theory considers the rights on the house to be that of the individual until foreclosure.

How they work

Like most loans, mortgages are paid back in installments consisting of a portion of the balance and interest. If payments are not made, the company can foreclose on the mortgage. Which means that they will demand the full amount immediately. If the amount cannot be paid, the individual stands to lose the home. Foreclosures are a part of the mortgage agreement and are written into the contract by the company.

Foreclosures are policies of the Mortgage Company and are not found in any state or federal laws. Therefore the company has no legal responsibility to enforce foreclosures, but they have the right to do so. It is a way for them to ensure they will be paid and be able to run their business. Technically once the house comes under foreclosure, if the debt is not paid, the mortgage company gets the house and the right to sell it for payment of the debt.

Laws surrounding this process vary by state and by Mortgage Company. Generally there are court proceedings before a foreclosure, and many states will rule to allow for late payment so as to help the individuals keep their home.

By Jeanne Rongitsch           


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