Here are some of the predatory lending practices that you need to steer
clear of:
- Frequent Refinancing - The frequent refinancing of loans without
offering any real benefits to the homeowner or borrower, or frequent
refinancing of loans simply so that the lender may generate additional
fees for him or herself.
- Equity Switching - Equity stripping, by persuading an owner in dire
financial straights to take out a loan far beyond his or her ability to repay it.
- Bait and Switch - Attempts at bait and switch, where lenders advertise
a specific set of 'teaser' fees and interest rates, then the rates and fees
skyrocket suddenly at the point of closing, reaching points that are
beyond the homeowner's means.
- Appraisal Inflation - Inflating appraisals up front, forcing the
homeowner to take on much larger loans with much higher interest rates.
Homeowners lose the opportunity to refinance the amount of the loan at a
later time, because the value of the home is no longer enough to cover
the full amount of the loan.
- Loss Mitigation - This practice is regularly referred to as "I can prevent
your foreclosure, but only if you pay a fee". People who try to force this
type of a process on unsuspecting people tout it as the ability to stop or
prevent foreclosure, but only for a fee paid up front. The problem with this
type of service is that the "rescuer" cannot guarantee that they will
actually prevent your foreclosure from occurring, yet they still collect your
fee up front. If you want to protect yourself as a homeowner in a bad
financial situation, there are much easier ways to do it without paying
exorbitant fees to "rescuers" who more than likely will not be able to help
you.
- List and Sell - This is a scheme that is becoming quite popular among
real estate agents and brokers looking for additional income streams. The
concept is simple: The real estate agent convinces a homeowner in default
to allow the agent to list the home in an attempt to sell it. The real estate
agent promises that if the home is not sold within the period before the
foreclosure auction, which is typically around sixty days away, he or she
will purchase it.
But here is the catch: In too many cases, the real estate agent will
drastically overprice the property when listing it in the MLS or Multiple
Listing Service, so that nobody expresses any interest in purchasing it.
Then when it does not sell, the agent is able to purchase it for
substantially less than what it was listed for.
- Hiding things in the contract - Some scammers and predatory
lenders like to hide a variety of different bombshells right in the contract
where they cannot be found. They wait until the absolute last minute, and
then make these hidden terms known. By now, it is too late for the
homeowner to renegotiate the contract, and he or she is trapped dealing
with the true intentions of the contract.
Homeowners who are caught in situations like these are very rarely
capable of seeking legal advice. They suddenly find out that there are
costs behind their resources, but if they fight the contract at closing they
could potentially lose their home in the foreclosure process.
There are a number of organizations, like ACORN or the Association of
Community Organizations for Reform Now, the Consumer's Union, and the
United States Office of Housing and Urban Development or HUD that offer
extremely vital and valuable insight into protecting yourself from
predatory lending practices and everything that is well within your power
to combat these dangerous practices.
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