Predatory Lending

Q: I have been frantically searching for help regarding my refinance five months ago.
 

I specifically asked the loan company for a fixed-rate mortgage with no prepayment penalties, with payments between $1,300 to $1,500 a month. My loan officer said that it would be possible.

A week later, I received documents from a bank for an interest-only loan with a prepayment penalty. I called the loan officer and he told me to disregard that because he was working on another loan that would be more to my liking.

I ended up accepting an interest-only loan, because I was told that the loan I wanted would have insurance requirements. Before I signed the paperwork, I asked what I would be paying per month. The loan officer told me it would be $1,481. Great!

About a month ago, I was looking at my payment receipts and saw a negative principal balance of almost $5,000. I searched "negative principal balance" and learned what it was. I went back and checked my loan documents, and sure enough, it stated that I had a minimum payment of $1,481. To fully amortize the loan I am required to pay $2,574.

My loan agent never mentioned that to me. I feel I've been duped! Later I found that there is a pre-payment penalty on the loan until 2012. Aren't loan agents required to disclose this information? Where can I go for legal help?

A: I’m sorry for your legal troubles. You appear to have fallen into the hands of a predatory lender. Predatory lenders convince borrowers to take out a loan that appear to suit their needs in the short term, but actually contain prepayment penalties and high interest rates. They also typically have high closing expenses.

Most homeowners who fall victim to predatory lenders fail to review their loan documents prior to signing them. In some states, such as California and Georgia, home buyers typically don’t hire real estate attorneys to help them close their deals. As such, they rely on real estate brokers, mortgage brokers or closing agents for information, none of whom get paid until the deal closes.

Some people just sign the papers, and never even ask questions.

It sounds as if you read the early versions of the loan papers, and caught some of the bad stuff your lender was trying to throw your way. But why did you stop there?

If you had reviewed the loan documents at the closing (before you signed them), you would have discovered that you would have had a prepayment penalty on your loan and that your interest rate was rather high and that the loan had negative amortization.

While you might not have know what negative amortization was at that time, you would have seen that your interest rate was significantly higher than the interest rate generally quoted in newspapers or by most lenders. You could have stopped the refinancing right there – in the title company’s office.

Your biggest mistake was shopping for a loan based on the payment amount you could afford rather on what your interest rate would be and what your monthly payment would be with that interest rate. It’s a little like walking into a car dealer and telling the dealer that you can afford $400 per month, and asking what kind of car you can get.

When you do that, it’s like painting a bullseye on your forehead for any lender who is looking for an easy mark.

Your best bet at this time is to file a complaint against the mortgage broker with the governmental agency that regulates mortgage brokers in the state in which you live and with any association that governs mortgage brokers in your state.

For example, if you live in California, you can file a complaint at the state level with the Enforcement Division of the California Department of Corporations. You can also file a complaint with the California Association of Mortgage Brokers which has a complaint department. At the federal level, you can file a complaint with the department of Housing and Urban Development.

Here’s one more way to get some leverage: This topic is so hot these days that you might get some help from Capital Hill. Call your state senator or representative to tell them your story. These government officials may also have further information and resources for you.

Samuel J. Tamkin is a Chicago-based real estate attorney. Ilyce R. Glink’s latest book is 50 Simple Steps You Can Take To Sell Your Home Faster and For More Money In Any Market. If you have questions for them, write: Real Estate Matters Syndicate, PO Box 366, Glencoe, IL 60022 or contact them through Ilyce’s website www.thinkglink.com