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PREDATORY LENDING

The staff in my neighborhood walk-in centers around Brooklyn often get this question: “How can I avoid predatory lenders and what can I do if I’ve been the victim of one?”

Predatory lending victimizes people who have trouble getting loans because of poor credit ratings or lackluster employment histories, and those whose homes are in foreclosure. Predatory lenders may refinance small mortgages with terms that harm the borrower (also known as “loan flipping”), factor overpriced insurance or balloon payments into loans, and set high penalties for paying off loans early.

People whose homes are in default or foreclosure often fall victim to the foreclosure rescue scam. In these cases, disreputable lenders pressure homeowners to make refinancing deals to “save” their homes. However, once the deal is done, the lender ends up owning the home, and the original owner becomes the “savior’s” tenant. The victim can be evicted if the lender sells the home to a third party.

Next month a new law, the Home Equity Theft Prevention Act, goes into effect to help victims of mortgage rescue scams. It will allow victims to rescind a sale within two years, if the law was broken and the scammer still holds the title. The law also establishes civil and criminal penalties for mortgage rescue scams.

Sometimes people are victimized by bad deals that are not illegal, and the best way to avoid them is through education. My office frequently hosts seminars on predatory lending at community centers throughout Brooklyn.

Below are some tips to keep in mind when applying for a loan.

·     Bring your own lawyer to handle the transactions and paperwork. Do not use the lender’s lawyer. If you do not have an attorney, contact the Brooklyn Bar Association, at (718) 642-0843.
 

·     Read everything very carefully. Do not agree to a deal verbally. Get everything in writing. Do not agree to falsify any information.
 

·     Do not sign a blank document or leave a document containing blank spaces to be filled in later. Check your loan file.
 

·     Do not leave any of the following disclosures missing: Good Faith Estimate, Special Information Booklet, Truth in Lending and HUD-1 Settlement Statement.
 

·     Get a breakdown of the monthly payment. Do not be convinced that you can afford something that you know is beyond your budget.
 

·     Make sure that the loan you obtained is not more valuable than your home.