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Predatory lending occurs when lenders uses deceptive tactics to trick borrowers into accepting a loan that provides a great benefit to the lender but could potentially ruin the borrower financially. Consumers with poor credit and the elderly are common targets for predatory lenders. If you believe that you’ve been the victim of a predatory lending scheme, you may seek legal recourse.
Is Your Loan Predatory?
Predatory lending practices vary widely, but in most cases, loan officers make promises to borrowers that are simply too good to be true. If your loan officer promised you a low-interest, low-fee loan and you ended up with a high-interest, high-fee loan, you’ve been the victim of a predatory lending scam.
Other predatory lending scams may be harder to uncover because certain aspects of the loan weren’t properly disclosed. For example, if you had a prepayment penalty or a balloon payment on your mortgage, you may not even be aware of it until you attempt to refinance or your balloon payment comes due. Both scenarios can leave you stuck in a mortgage you cannot afford and prone to foreclosure.
Enact Your Right of Rescission
The right of rescission is each individual’s right to turn down a loan after signing the paperwork. According to the Truth in Lending Act (TILA), the right of rescission lasts three days on most loans. Predatory lenders, however, often intentionally fail to adhere to the disclosure requirements outlined in the TILA. One such disclosure is the Notice of Rescission. This document informs the borrower of his right to rescind the loan within three days.
If your borrower did not provide you with a Notice of Rescission, or the notice contained any errors, it isn’t legally binding. If a loan closes without a Notice of Rescission, the borrower has three years to rescind the loan agreement. If you want out of your predatory loan and your lender failed to provide you with proper notification of your rescission rights, you can legally walk away from your obligation to your lender--in addition to collecting damages in court.
Sue the Lender
If your mortgage documents clearly show that your lender violated the TILA, you may have legal grounds to file a lawsuit. Victims who file a civil lawsuit against their lenders and win can collect monetary damages. If your predatory loan was a mortgage, you can collect up to twice the sum of finance charges your mortgage company levied against you. Although the TILA is federal law, your state’s laws also come into play when filing a civil suit. Talk to an experienced attorney in your area to determine whether you have a legitimate case.
Refinance Secured Loans
If you're paying more than you should for a predatory home or car loan, you may save money--and avoid falling behind on payments--by refinancing the loan. When you refinance the loan with a new lender, your new lender will pay off your old, predatory loan and you can begin making payments under your new loan agreement that contains more favorable terms.
- Should You Refinance? Make Sure the Timing is Right
- Short Selling a Rental Property
- Second Mortgages: Advantages and Disadvantages
- What Lenders Don't Reveal About Home Equity Loans
- Alternatives to Getting a 2nd Mortgage
- Home Equity Loans for People with Bad Credit
- FHA Eligibility with Bankruptcy and Foreclosure
- What To Do When Mortgages Default
- FHA Loans for a First-Time Home Buyer