Predatory lending describes a practice where a person is offered a loan or a mortgage at a high interest rate in exchange for the deed to the property, or some other valuable form of collateral. By the terms of the loan, if the borrower does not pay back the entire loan, the lender can acquire property in lieu of repayment, and will often sell it for a significantly higher value than the loan.
Recently, predatory lending has grown significantly. Each year, nearly one million loans are made with unreasonable terms and abusively high lending fees. Many of these victims are the elderly, poor, or minorities, who may not have financial resources to acquire a more favorable loan or the education to avoid falling prey to these loans. Because of these terms, many of these victims are unable to pay their loans, and their property ends up in foreclosure.
Some common predatory lending practices include:
- Bait and Switch: This describes a lender offering one set of terms when the borrower applies for a loan, but later changing the favorable terms for worse terms at the time of the loan’s closing.
- Fraud: Concealment of the loan’s terms, or simply misrepresenting the loan outright may constitute fraud.
- Prepayment penalties: These penalties occur when a lender charges exorbitant fees if the borrower pays off the loan early or refinances the loan.
- Loan flipping: Loan flipping describes a lender providing unnecessary refinancing of the loan with no apparent benefits to the borrower. This may wind up extending the duration of the loan, and only benefit the lender.
- Balloon payments: These occur where an outrageously high payment due at the end of the loan’s lifetime.
- Equity Stripping: The lender makes a loan based on the borrower’s home equity, regardless of borrower’s ability to repay the loan.
- Insurance Packing: This describes a loan that charges borrowers for services that a borrower does not want, need, or necessarily even agree to.
The law provides many different grounds by which a claim can be brought against a predatory lender. These can include suits based on violations of:
- Breach of Contract
- The Truth in Lending Act (TILA):These statutes assure disclosure of credit terms
- The Home Ownership and Equity Protection Act (HOEPA): These laws protect against lenders offering loans with worse terms to residents of certain locales
- The Real Estate Settlement Procedures Act (RESPA): This act provides more effective disclosure to home buyers of settlement costs
- The Equal Credit Opportunity Act (ECOA): This act prohibits discriminatory treatment by lenders
Violating many the above statutes can result in steep fines and money damages to the borrower. In addition, there may be local or state statutes that offer remedies for predatory lending claims. For example, the U.S. Department of Housing and Urban Development (HUD) funds many housing couneling agencies designed to help borrowers avoid foreclosure.
What a person may recover from predatory lenders depends partly on what doctrine a claim is brought against the lenders. Some remedies that may be available can include:
- Rescission of the loan contract
- Actual damages sustained by the predatory lending
- Statutory damages
- Attorney’s fees and costs
- Enhanced monetary damages, including all payments made by the borrower
- Punitive Damages
- Equitable relief, including specific performance in some cases
If you feel you have been a victim of predatory lending, and as a result your house is about to be foreclosed upon, you should consult an experienced real estate lawyer or foreclosure attorney to discuss your legal remedies and options. A lawyer can help you file any necessary paperwork, and if need be, represent you in court.