Predatory lending. Can I sue the lender?
What is predatory lending?
Anyone who is unfortunately involved in a case involving predatory lending is going to face a horrible experience.
Buying or refinancing a home may be one of the most important and financially complex decisions a person will ever make in his or her lifetime.
Many qualified lenders, appraisers and real estate professionals are ready and available to help a borrower find a nice home and secure a great loan.
However, each year many consumers, often first-time home buyers, people refinancing their mortgages or seniors, become victims of predatory lending or mortgage loan fraud which can result in devastating financial effects.
And when real estate/lending transactions operate within legal, although misleading boundaries, a default in contract can result in a potential borrower being sued.
Lending and mortgage origination practices become “predatory” when the borrower is led into a transaction that is not what they expected.
Predatory lending practices may involve lenders, mortgage brokers, real estate brokers, attorneys, and home improvement contractors.
Their schemes often target people who have small incomes but substantial equities in their homes.
Products themselves are not predatory.
For example, a loan with a variable interest rate can be a very good financial tool for many borrowers.
However, if the borrower is sold a loan with a variable interest rate disguised as a mortgage loan with a fixed interest rate, the borrower is the victim of a bait and switch or predatory lending practice.
In short, this type of conduct is nothing more than mortgage fraud practiced against consumers.
Consumers can be lured into dealing with predatory lenders by aggressive mail, phone, TV, and even door-to-door sales tactics.
Their advertisements promise lower monthly payments as a way out of debt but don’t tell potential borrowers that they will be paying more and longer.
They may target minority communities by advertising in a specific language, or target neighborhoods with high numbers of elderly homeowners, or homeowners with little access to credit.
Examples of mortgage loan fraud or predatory mortgage lending include:
- Encouraging applicants to include false information and/or lie about their income, expenses, or cash available for down-payments in order to get a loan, thereby lending much more money than a borrower can afford to repay.
- Asking borrowers to leave contract signature lines blank.
- Failing to include Good Faith Estimates, Special Information Booklet, Truth in Lending and Hud-1 Settlement statements.
- Convincing a borrower to refinance a loan several times, each time increasing monthly payments or amounts owed thereby “stripping” any equity accrued.
- Charging fees for excessive cost or loan terms and/or for nonexistent products and services. This can include inserting hidden clauses into contracts in which a borrower will unknowingly promise to pay a broker or lender to find a mortgage whether or not the mortgage is closed.
- Aggressively pressuring borrowers to accept higher-risk loans such as balloon loans, interest-only payments and steep pre-payment penalties.
- Targeting borrowers to cash-out refinance offers when borrowers are knowingly in need of cash due to medical, unemployment or debt problems.
- Brokers selling properties for much more than they are worth using false appraisals.
Is Your Loan Predatory?
Predatory lending practices vary widely, but in most cases, loan officers make promises to borrowers that are simply too good to be true.
If your loan officer promised you a low-interest, low-fee loan and you ended up with a high-interest, high-fee loan, you’ve been the victim of a predatory lending scam.
Other predatory lending scams may be harder to uncover because certain aspects of the loan weren’t properly disclosed.
For example, if you had a prepayment penalty or a balloon payment on your mortgage, you may not even be aware of it until you attempt to refinance or your balloon payment comes due.
Both scenarios can leave you stuck in a mortgage you cannot afford and prone to foreclosure.
Enact Your Right of Rescission
The right of rescission is each individual’s right to turn down a loan after signing the paperwork.
According to the Truth in Lending Act (TILA), the right of rescission lasts three days on most loans.
Predatory lenders, however, often intentionally fail to adhere to the disclosure requirements outlined in the TILA.
One such disclosure is the Notice of Rescission.
This document informs the borrower of his right to rescind the loan within three days.
It isn’t legally binding if your borrower did not provide you with a Notice of Rescission or the notice contained any errors.
If a loan closes without a Notice of Rescission, the borrower has three years to rescind the loan agreement.
If you want out of your predatory loan and your lender failed to provide you with proper notification of your rescission rights, you can legally walk away from your obligation to your lender–in addition to collecting damages in court.
Sue the Lender
If your mortgage documents clearly show that your lender violated the TILA, you may have legal grounds to file a lawsuit.
Victims who file a civil lawsuit against their lenders and win can collect monetary damages.
If your predatory loan was a mortgage, you can collect up to twice the sum of finance charges your mortgage company levied against you.
Although the TILA is federal law, your state’s laws also come into play when filing a civil suit.
Talk to an experienced attorney in your area to determine whether you have a legitimate case.
Refinance Secured Loans
If you’re paying more than you should for a predatory home or car loan, you may save money–and avoid falling behind on payments–by refinancing the loan. When you refinance the loan with a new lender, your new lender will pay off your old, predatory loan and you can begin making payments under your new loan agreement that contains more favorable terms.