A mortgage is the sum of money that a person borrows from a lender and pay off on a monthly basis with the intention of buying a real estate property.
There are many lenders out there offering different rates and costs. Some are better than others because they offer their clients so much more. However, there is one type of lender that everyone should stay away from.
Predators in the World of the Lending Industry
Predatory lending involves the use of dishonest practices to entice and encourage a borrower to take out a loan that they are incapable of paying. Often, individuals and groups who participate in predatory lending targets people in low-income families, seniors and elderly, military service members, and people who are in desperate need of cash.
However, anyone could be a victim of predatory lending. Those who are taking out home loans should review the history and reputation of the lender thoroughly before they sign any contract.
What Happens When You Become a Victim of Predatory Lending?
Falling victim to predatory lending schemes can be devastating. One way lenders take advantage of borrowers is by imposing high fees and interest rates, which make paying off the loan more difficult than it already is.
If the borrower defaults, it would affect their credit score in a long time. It will negatively impact their chances of being hired if they are looking for a job, renting an apartment, or getting insurance for years afterward.
The victim of predatory lending may also lose their home to foreclosure. They will have to move out immediately which is physically, emotionally, and financially exhausting. A foreclosure prevents the household from building wealth through home equity.
To avoid defaulting and foreclosures, some victims take out more loans to pay off their debt. They get trapped in a cycle of taking out and paying off loans. Aside from incredibly stressful, a debt trap limits the financial products available to the victim.
Laws that Seek to Protect Borrowers
Thankfully, there are federal laws that protect consumers from predatory lending. The Truth in Lending Act (TILA) requires lenders to disclose the full terms and costs that come with taking out a mortgage loan. This means that the lender cannot suddenly spring a hidden fee to the borrower during and after a deal was made between the two parties.
TILA also prevents lenders and brokers from steering a borrower toward a loan that will get them a higher commission but offers no benefit for the borrower.
The Homeownership and Equity Protection Act (HOEPA) is anamendment to TILA that aims to end abusive practices in the home loan industry by making sure that the borrower knows exactly what taking out a loan entails. The lender is forced to provide certain disclosures so that the borrower can make a more informed decision.
In addition, there is also an Equal Credit Opportunity Act (ECOA) which ensures that lenders do not impose higher interest rates and fees based on the borrower’s skin color, ethnicity, race, religion, sex, marital status, and age.
Fighting Back Against Predatory Lending
Predatory lending can drain a victim’s resources. Hiring a lawyer to fight back and assert their rights may not seem possible, especially if they have been duped out of all their money and possessions.
However, a lawyer will be able to help the borrower get out of the abusive agreement they signed with the lender. Most law firms offer a free first consultation to offer advice. A victim can use it to clarify the terms of the loan and ask if they have a case in their hands.
Once the victim, with the aid of their lawyer, is able to raise the issue to court and the court decides that the loan is abusive, the lender may be ordered to modify the terms of the loan or cancel the debt altogether.
Of course, it would not be easy. The victim would have to prove that the lender used predatory practices that pressured them into taking out the loan.
The victim may also file a complaint against the lender via the Consumer Financial Protection Bureau and the Attorney General’s Office.
The industry is rife with people who want to take advantage of households desperate for money to buy their dream home or a car they can use to drive to work. The first line of defense against predatory lending is to be aware of your rights as a consumer so you can spot illicit activities.
If you become a victim of predatory lending, talk to a lawyer and figure out your next step of action.