A few years ago, someone wrote something somewhere (it wasn’t here – I swear) that if you were the victim of predatory lending, you could get a free house. Actually, I recall someone at a legal seminar (not here in Massachusetts – I swear) suggesting that it could be done… which sent some colleagues of mine into a tizzy thinking they could easily get free houses for people who were preyed upon by bad bankers. If that could be done with such ease, then there would be firms not only doing this work, but we’d be reading billboards declaring their success rates on the sides of highways.
I get calls from people who tell me that they have fallen victim to scams and predatory lending. Sometimes, those claims will work – but even in cases where they will, the result is not a “free house” but rather a lender who is willing to talk about negotiating the loan on more affordable terms. So like yesterday, let’s visit our fictional debtor Bob and see what might happen for him.
Remember, Bob bought his house for $500,000 in 2005 and it’s now worth only $290,000. He’s got a $350,000 adjustable first mortgage and a $100,000 second. He’s drowning and cannot refinance. Bob’s first mortgage was interest only for two years, and than for three years, he could choose three ways to pay: (a) principal and interest – which he never could afford; (b) interest only; or (c) minimum payment (less than interest only). If Bob only paid the minimum payment, his loan would amortize negatively – what we sometimes refer to as a NegAm loan.
Bob put 10% down when he bought the house, but at the time, Bob’s income was not enough for a conventional mortgage. Before the closing, his mortgage broker told him that the only way he could get the house was with this loan – but that he could easily refinance it in a year or two.
Bob tried to refinance after one year, but his income was still not high. Two years later, he got a better job making $75,000 a year, but the new job coupled with the market turning made refinancing impossible. Bob tried to ride it out…and then he got a notice that his payment was going to jump. Bob has also since learned that the broker lied to him – and that other loan products were available to him but the broker did not consider them. Instead, the broker got Bob this “exotic” loan because so the broker could get a higher comm`ission. The broker and the broker’s business have since gone bankrupt.
Has Bob been the victim of predatory lending?
The only way to answer that accurately is to review every stitch of documentation surrounding the purchase of the home and the financing of it. This includes the mortgage applications, the HUD, the disclosures and any other documents. What he needs is a document review by someone who knows what to look for (in other words, smoking guns).
For now, let’s assume that there is a basis for a predatory lending claim… what can Bob do about it? That’s going to depend on the nature of the claim – and what Bob’s objectives are. It’s also going to depend on what Bob’s financial wherewithal. If Bob has a good job and is able to make payments, he might be in a position to negotiate with the lender. But if Bob is facing a layoff – and perhaps even a health problem that might impede his ability to find a job – that would limit his options.
When Bob got the notice of his increased payment, he promptly called a lawyer. This gave him and the lawyer ample time to review the documents to determine what claims Bob might have, with a view of getting Bob on a road where he’s exploring all options.
Related posts:
- The Scourge of Predatory Lending
- Saving the Home: Thinking Beyond “Delay and Pray”
- When Mortgage Brokers Request Secrecy
- Lending to Unemployed: Frankly, There’s Got to be a Better Way
- Facing Bankruptcy with Nagging Regret
Tags: Mortgage and Foreclosure, Predatory Lending, What About Bob?
