WHAT IS A PREDATORY LOAN?
Although there is no universal or clear-cut definition of a predatory loan, experts do agree that it is the result of misleading and coercive tactics deliberately perpetrated upon unsuspecting homeowners (typically on a home equity loan or mortgage refinance) where excessive interest and costs are assessed and/or the loan is made without regard to the homeowner's true ability to repay, which is a state violation (C.R.S. §38-40-105) and federal violation (HOEPA)!!! 

      These types of loans strip away the equity in your home, lock you into an impossible repayment predicament and after they have drained all of your cash and savings, they converge on you like predators to steal your home.  Hence, the name “predatory lenders”.  The elderly are prime targets for predatory loans.

The State Attorney General’s Office and the District Attorney’s Offices, through their inaction, have allowed this type of conduct to go completely unchecked in the state of Colorado.  But this does not prevent you from fighting on your own to keep your home, so again, sit up and pay attention!

 

 These are some of the abusive practices you will experience from a predatory lender:  

Terms, Interest Rate and Fees are Increased at Closing (bait and switch)    Excessive Fees - Unnecessary Product -  Excessive Kickbacks To Brokers   Mandatory Arbitration  -  Abusive Prepayment Penalties - Loan Flipping    Steering & Targeting                         

                                   NOW FOR THE GOOD NEWS!

Federal Law provides protection against abusive and insensitive lending practices.  Furthermore, the law provides for very stiff penalties for lenders who violate such laws. 

IF YOU WANT TO KEEP YOUR HOME, ARM YOURSELF WITH AN UNDERSTANDING OF THE PROTECTIONS UNDER THE FOLLOWING: 

The Truth in Lending Act (TILA)     

The federal Truth In Lending Act was originally enacted by Congress in 1968 as a part of the Consumer Protection Act to protect you, the homeowner.  Under TILA a homeowner has a right to rescind a loan secured by his or her primary residence. This includes home equity loans and home improvement loans and refinances, whether a first or second mortgage, so long as the money was not used to purchase the home. Under this Act, the homeowner must be provided with a notice of the right to cancel. The lender must have a notice signed by you notifying you of this right to cancel; otherwise the lender has not complied with this federal law.

THIS CAN BE FOUND ONLINE OR AT THE LIBRARY IN FEDERAL LAW:    TITLE 15 U.S.C. SECTION 1601 et. seq     READ IT!!!!!!!    

You, the homeowner have a right to rescind your loan up to three business days after the transaction and an extended right to rescind the loan for up to three years (that’s right folks, you can cancel your loan up to three years later) if you’re not given a notice of the right to cancel the loan, OR if you did not receive notice with all of the required material disclosures.  Oh it’s a stiff penalty, but it’s your right!! TILA also requires lenders to disclose the terms of loans in an understandable manner. The “National Consumer Law Center's Truth in Lending” manual provides detailed information on how TILA can be used to CHALLENGE predatory loans. 

Sounds a little like poetic justice to me!   Send your lender (by certified mail) your rescission notice pointing out the violations under TILA, HOEPA AND RESPA.   This is federal law so take full advantage of it!  Get the picture?

Home Ownership and Equity Protection Act (HOEPA)

The Home Ownership and Equity Protection Act, is an amendment to TILA. This section of law covers certain high rate home equity loans. In addition to notice of the right to cancel and other disclosures required by TILA, if a loan is covered under HOEPA, lenders must provide borrowers with additional disclosures of the “annual percentage rate” (APR) and monthly payment three days prior to closing. These disclosures must also include provisions telling the borrower that they are not required to sign the loan agreement simply because they received the disclosure statements, and they may lose their home if they do not meet their obligations under the terms of the loan. In addition to the disclosure requirements, HOEPA prohibits the inclusion of certain terms in the loan contract. A loan covered under HOEPA may not include the following:

1.        Terms which increase the interest rate in the event of default.  If you fall behind on your mortgage payment, they cannot increase the interest rate.

2.         Balloon payments prior to ten years.  The lender cannot put a stipulation in your loan that requires the total amount of your loan to be paid off in the first ten years or even a payment that is much larger than your regular monthly payment.

3.           Negative amortization. If the amount of your monthly payment is not enough to cover the interest payment on your loan, the “shortage” is added to your loan balance.  So with each monthly payment you make, your loan balance goes up instead of down.  This type of loan violates federal law.

4.             No prepaid payments.  At closing, the lender cannot roll any payments into your loan.  This would result in additional interest charged on interest itself, which is prohibited by state and federal usury laws.

5.              Extending credit to individuals without regard to their ability to repay the loan.   This is a big one folks!  A lender cannot put you in a loan based on fictitious income information that was grossly exaggerated in order to make it appear that you qualified for the loan.  This is an illegal practice prohibited by state and federal law and a very common abuse perpetrated on the elderly. 

6.               Disbursement of funds payable solely to a home improvement contractor.  On a home improvement loan, the lender cannot pay the contractor directly.  The check must be made solely to the homeowner or made to the homeowner and the contractor together.

7.                Most prepayment penalties are also prohibited.

If you are facing foreclosure and your loan is less than three years old, you are still protected under federal law!  Violations of HOEPA's disclosure provisions and inclusion of prohibited contract terms will make your lender liable to you for actual damages, statutory damages and attorney fees and costs. In addition, there are special enhanced damages, of finance charges and fees paid by the consumer, for material violations. HOEPA violations are also subject to TILA's extended right to rescind.   Assignees (if your loan is sold to another lender) of loans covered under HOEPA are liable for all claims and defenses with respect to the assigned mortgage that the consumer could assert against the original lender on the loan, except to the extent of certain limitations on damages.  These laws are for your protection and can save your home, use them!!!

Real Estate Settlement and Procedures Act (RESPA)

Among other provisions, the Real Estate Settlement and Procedures Act  prohibits the payments of unearned fees and kickbacks. A lender kickback to a mortgage broker for making a referral is forbidden. The remedy for violation of this provision is treble (three times the amount) damages and attorney fees.

State Unfair and Deceptive Acts and Practices Laws (UDAP)

Many of the abusive practices and loan terms found in predatory mortgage loans can be challenged under state unfair and deceptive acts and practices (UDAP) laws. If a state's UDAP statute covers the type of transaction or the creditor involved, advocates may bring claims for practices such as repeated and unnecessary refinancing ("flipping") of loans, making unaffordable loans to consumers to acquire the equity in the property, or misrepresenting the loan terms. Excessive fees and costs, and other terms that are disadvantageous to the borrower may be challenged as well.

Other Laws

In addition, warranty law, usury, unconscionability, breach of fiduciary duty, fraud, and contract law have remedies which may prove helpful in challenging abusive loans. Other laws, including the Equal Credit Opportunity Act and the Fair Housing Act, have also been used to challenge these practices.