Avoiding Predatory Lending
Predatory lending includes a host of unethical and, sometimes, illegal activity that occurs during the purchase of a home that creates conditions that will make it difficult for the homeowner to keep the home after the sale is complete. These activities include but are not limited to cases where loan companies:
- Intentionally lend more money than a homeowner can repay.
- Insisting borrowers accept unfavorable loan terms like exorbitant prepayment penalties, balloon payments, or interest-only loans.
- Pressuring borrowers to falsify application information like income or savings balances.
- Using inflated appraisals to sell a home.
- Specifically soliciting borrowers in financial distress.
Real estate agents, mortgage brokers, and appraisers can profit from predatory lending, and they may even be in collusion. The cost to the borrower is very high. Victims of predatory lending not only lose their homes but their investment and their dignity.
Predatory Lending is not hard to spot once you know the signs. Be wary of anyone who:
- Tries to sell you a home that is priced more than any comparable home in the same area.
- Pressures you to sign blank documents.
- Changes loan or purchase terms or costs at the closing.
- Insists that an offer is on the table for very limited time.
Be suspicious of anyone that exhibits one or more of the behaviors listed above.
Below are listed strategies for protecting yourself:
- You should always read contracts or loan papers very carefully before signing them. If you don't understand a clause or section of a contract or loan paper, get someone you trust who does understand (such as a lawyer you have hired to represent you) to read the documents and explain them to you in plain language.
- Never sign any paper that is blank or that you do not understand.
- Request copies of closing papers in advance and have an attorney review them.
- Comparison shop to find the best rates and terms.
- Do not lie to or mislead a potential lender.
- Only borrow what you know you can afford to pay back.
- Refuse to sign if terms or costs suddenly change at closing! Instead, reschedule for another time when the costs and terms have been corrected. Do not take someone's word that errors on a signed document will be corrected after-the-fact of your signing.
Common sense is your best defense against predatory lending. If you feel that something is amiss, you should trust your instincts and investigate further. Additionally, there is no legitimate reason to rush into buying a home. Take the time to make good and careful choices. Anyone rushed into buying may soon find themselves rushed out of their home.