What is a predatory loan? And what can you do if you have one?

Predatory LendingThe word predatory is alarming. One of the definitions that Merriam-Webster gives for predatory is: “inclined or intended to injure or exploit others for personal gain or profit.”

So, what is a predatory loan? Well, the FDIC has some great resources on their website that help define predatory loans. A good starting point is at this link. There, you will see that the FDIC (Federal Deposit Insurance Corporation) finds the idea of predatory loans difficult to define. It seems hesitant to define these types of loans completely—yet wants to provide guidelines for consumers facing this problem. Overall, they feel that predatory loans involve at least one of these things (in summary): an unaffordable loan based on the wrong things, tricking the borrower into accruing high fees or points, or engaging in fraud or deception.

Another agency that discusses predatory lending is HUD, the U.S. Department of Housing and Urban Development. Their site provides some excellent tips on how to avoid predatory lending or other loan fraud here. Another great aspect of this site is the more in-depth information about how a predatory lender might convince you to take an improper loan. It falls in line with FDIC’s stated concern about unaware buyers being duped into a predatory loan.

SmithLaw has seen many unfortunate circumstances where homeowners accepted loans that were not well suited to their situation and/or ended up signing documents and contracts they never should have signed.  The HUD site has some great information about what to look for in a shady situation.

There are many definitions for predatory lending and many agencies weighing in on what to do about it. Many homeowners duped into loans by what they feel is predatory loan practices are wondering how they can remedy the situation. Can they sue the bank? Can they get the loan fixed?

What are some options for those who feel they are victims of predatory loan practices? The Federal Government provides some help with the Truth in Lending Act. Florida also has the Florida Fair Lending Act. Found in Chapter 494 of the Florida State Statutes, it addresses fair lending practices and provides some recourse for unfair lending. The Act also backs up something the FDIC says about a loan based on the wrong things—being equity-based instead of income-based is a strong example. MSN also has an informative article about legal recourse for predatory lending. It helps define when you might have a case for it and when you might not. A little research should help homeowners decide if they were victims of predatory lending. And, usually, there is not just one victim—so keep your ears and eyes open for news of large amounts of fraud happening with certain banks and companies.

Now, the Florida Fair Lending Act helps the situation of predatory lending, but it is not a cure-all. Proving a predatory loan is often difficult. One way to be sure you have some evidence for legal proceedings of any type is by keeping diligent records of all conversations, as well as keeping track of faxes, emails, and signed contracts. Make notes of anything you found suspicious. Ask for things in writing. Keep track of who told you what. In addition, do not sign anything without reading it. Legal counsel might be a good idea for many types of contracts.

Something to keep in mind is that many homeowners are not happy with their new loan or refinanced loan. They might not even be able to afford it. However, that does not always mean there is evidence of predatory lending or fraud.

Predatory loans have become a real problem in todays down economy. Many people are desperate to own homes or keep the one they have. It is easy to see how these situations allow some buyers and homeowners to fall victim to fraud or predatory loans.

Image credit: dtaylorcreative

 

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