Predatory lending happens when a lender uses an unfair or deceptive lending practices to trick borrowers into accepting a loan. There have been many cases where mortgage lenders acted unethically, deceptively or fraudulently. These practices frequently target borrowers that are vulnerable, such as the elderly or those with poor credit. Predatory lenders also prey on people that have an immediate need for cash, such as those paying for medical bills or that have just lost a job.
Predatory mortgage lending has become quite prevalent in home mortgages over the past couple of years. Since mortgages are backed by collateral, the unscrupulous lender profits even if the home is foreclosed.
If you believe that your lender acted unfairly or fraudulently when you took out your home mortgage, you may be able to challenge a foreclosure action in court.
Predatory Lending Practices
Predatory lending is a practice where a lender takes advantage of a borrower. Here are some of the most common types of predatory lending practices.
- Balloon mortgages – A lender uses balloon payments to hide the actual cost of financing. A buyer might be convinced to refinance a mortgage that offers lower monthly payments initially but has an excessive balloon payment later. These types of predatory loans are often refinanced over and over again when the borrower can’t pay the balloon payment. These repeated refinances drive up the cost of the mortgage.
- Abusive prepayment penalties – Severe penalties for paying off the loan early.
- Negative amortization – These types of loans allow borrowers to make minimal initial payments, which causes the outstanding balance to grow over time instead of getting smaller as the monthly payment is usually not even enough to cover the interest. Negative amortization loans are often impossible to repay because they keep growing.
- False or inadequate disclosure – The lender misrepresents or hides the actual risks and costs of a loan.
- Encouraging a homeowner to strip their equity by refinancing a loan multiple times
- Loan packing – Packing a loan with expensive products that the homebuyer does not need or want.
- Discriminatory lending – Imposing a higher interest rate based on a person’s marital status, age, sex, race or religion.
Signs That You Might Be The Victim Of Predatory Lending
The best defense against predatory lending is to be aware of the signs. Many homeowners are not aware that they have been victimized. Here is a list of some of the things to watch out for. You should consult with an experienced mortgage attorney if your mortgage lender engaged in any of the following:
- Encouraged you to lie about your income or expenses to get a loan.
- Asked you to leave signature lines unsigned when completing paperwork for a mortgage or refinance.
- Rushed you to sign loan papers without reading them.
- Approved you for a loan even if you don’t have a steady job or income of some kind.
- Tacked on hefty fees to the cost of your mortgage or refinance.
- Imposed costly penalties for paying off your mortgage early.
- Promised a mortgage no matter how bad your credit.
- Not telling you in advance that your mortgage would not include taxes and insurance
Predatory Lending Laws
Predatory and unfair lending practices often cause borrowers to get behind on mortgage payments. This can lead to a foreclosure. There are several predatory lending laws in place that prohibit predatory lending, including the Home Ownership and Equity Protection Act or HOEPA and the Equal Credit Opportunity Act (ECOA).
These laws protect consumers against excessive interest rates and fees and discriminatory lending. If you are the victim of a predatory lender, you can sue the lender. The court will examine the transaction to determine if it constitutes predatory lending. If the court determines that a loan is predatory, it could order the lender to cancel or modify the terms of the loan.
The offenses in this article are just a few of the unethical practices that lenders have been known to commit. If you have been the victim of a predatory loan, you should speak to a mortgage attorney who has experience in mortgage litigation and can advise you about what to do in your particular case.
Talk to a Mortgage Attorney to Discuss Your Options
If you believe you are or have fallen victim to any predatory lending tactics devised by your lender, contact a mortgage attorney immediately to find out what your best options are.
We have a network of dedicated and experienced mortgage attorneys who are able to speak with you to come up with the best options for your specific situation.
Call us at (323) 842-1582 to be connected with a mortgage attorney. The consultation is free!