• PREDATORY LENDING - This term can apply to all aspects of the mortgage industry and refers to the practice whereby a creditor puts a borrower into a loan that the borrower will probably not be able to repay;BAIT AND SWITCH - This commonly used tactic is where a creditor promises a low interest loan but then delivers a higher rate at closing;
• FAILURE TO DISCLOSE LOAN TERMS - Federal laws like the Truth In Lending Act (“TILA”) and the Real Estate Settlement Procedures Act (“RESPA”), as well as many state laws, require that creditors disclose certain terms of loans to borrowers, and when those terms are not disclosed or are inaccurately disclosed these laws provide severe monetary penalties against these creditors;
• IDENTITY THEFT AND FORGERY - These brazen behaviors have become prevalent in the mortgage industry and our firm is seeing a lot of forged loan documents, deeds, and other papers which were created using information stolen from loan applications;
• EQUITY THEFT – Also called equity skimming, refers to the situation whereby the same creditor refinances the same property with the same borrower multiple times and uses the equity in the borrower’s property to cover the costs of the loan in such a way that it seems like the new loans had lower payments and did not cost the borrower a dime. However, the reality is that the property’s equity was being drained with each refinance;
• RACIALLY MOTIVATED LENDING PRACTICES – Both federal and state law prohibit the mortgage industry from providing different loan terms to people based on race, sex, ethnicity, or other protected class. While this practice is often not apparent at first glance, you can see how it arises when loan documents are written in English yet signed by borrowers who do not speak English. Such a transaction may be subject to a cause of action under the Unruh Civil Rights Act or other law;
• ELDER ABUSE AND FRAUD – Because retirees often have a large amount of equity in their homes, they are prime targets for greedy and crooked creditors. We have seen mortgage sellers cold call elderly homeowners and then scam them into a loan which they do not need, can not afford, and which provides the seller with an incredibly large commission. We have elderly clients who were placed into loans where their monthly mortgage payments are more than their social security and retirement income. There are laws specifically prohibiting this practice against people over the age of sixty-five years.

Q: How do I know if I've been a victim of predatory lending?

Paul:
Start by comparing the loan you got with the one you thought you were getting. Are the terms the same? That is, is your Annual Percentage Rate ("APR") the same as the one you were quoted? Are your total monthly payments the same as you were told they would be? Is there a prepayment penalty, and if so, were you told about this prepayment penalty?

Nathan:
While it's always a good idea to read and try to understand every page of every document before you sign, a set of loan documents is a daunting read for most borrowers. Thus, many borrowers rely on their broker or loan officer to thoroughly explain all the important parts of the documents and to make sure that the documents state exactly what terms were agreed. Unfortunately, your broker and loan officer make more money by getting you to pay higher closing costs, accept a higher interest rate, and by locking you into a loan by adding a prepayment penalty. These brokers and loan officers may not be upfront about these unfavorable terms when explaining them to you.

Q: Okay, I've read my loan documents, and I think I've been lied to. What can I do?

Nathan:
Call or visit a mortgage law attorney in your state with your questions. This attorney should be able to review your documents, confirm your suspicions, and tell you what you can do to either get out of your loan or get compensation for any damages you have suffered as a result of that bad loan.

Paul:
Some violations of the Truth in Lending Act are so easily spotted that it takes an experienced mortgage attorney just a few minutes to uncover them. Other violations are harder to find and require recalculations of the loan figures to discover. We are often able to meet with a potential client, review the loan documents, and discuss how the loan was done. We are usually able to determine whether there was a violation within 30 minutes, and then advise the borrower whether he or she has a case worth pursuing.

Q: What kinds of cases are worth pursuing?

Paul:
If a potential client has refinanced his or her primary residence, that is, the home he or she lives in, then one of the first things we look at is the "notice of Right to Cancel" which is also called the Three Day Right of Rescission. A borrower usually has three days after signing loan documents to change his or her mind and cancel the loan. The borrower must be told of this right in writing. If the creditor fails to properly provide notice of this right to cancel, the right of rescission may be extended for up to three years.

Nathan:
When the right is extended for three years a borrower can rescind the loan at any time before three years, meaning that the loan is treated as if it never existed. Essentially, the borrower becomes entitled to all profits made by the creditor as a result of this loan. This means that the creditor must refund all interest paid, all closing fees, all broker fees, and even pay for the borrower's attorney fees. As you can imagine, this amount can be quite significant.

Paul:
The extended right of rescission is a powerful tool to help borrowers who have been victims of predatory lending, and helping our clients exercise this right is often the first step in holding a creditor responsible for illegal behavior.

Q: How do I get more information?

Nathan:
If you're in California, call our office. We will help you understand your rights, understand your loan, and determine whether you have been a victim. You can also download an article I wrote in May of 2007 on the right of rescission in PDF format by clicking here.