Have
you been trapped by a loan that might be a predatory loan? While
not all bad deals or sub-prime loans are illegal, there has been
a growth of predatory loan activity around the state and seniors
are sometimes caught up in such loans. This area of the law is complex,
and the fact situation can also be complex. This makes it difficult
to create a simple tool for non-lawyers. Still, here are some things
to look for, or steps you might take, if caught in such a loan situation.
Signs of possible predatory lending:
Has your lender:
- Used false appraisals to sell you property for more than it
is worth.
- Lent you money knowing that you can not afford to repay.
- Charged fees for unnecessary or nonexistent products or services.
- Refinanced to you in a vulnerable situation, like when you needed
cash in an emergency.
- Convinced you into a refinancing that has little or no actual
benefit to you – “stripping” your home’s equity.
- Wanted you to sign a contract that contains false information.
- Changed the costs and terms originally agreed upon or talked
about.
What can you do?
If you think any of the above has happened, you may be involved
with a predatory lender. If you are, you usually must act quickly.
Some of the available remedies have to be sought within a few
days or weeks at most, while other remedies can be asserted more
than a year later.
In addition, if you are ever sued on such a loan, or sued in a
foreclosure action or the like, you can often respond to such
a law suit or foreclosure action through legal paperwork known
as pleadings and then raise the issues, if any, regarding violations
of these laws. Again, because of the complexity, we recommend
you see an attorney as soon as you can to review the entire matter.
To start, gather all your papers, and also make separate notes
of anything you recall about your loan transactions. Use that
information and review these key but very very brief law summaries
which are aimed at restricting predatory loan or unfair loan activity:
1. The Truth in Lending Act requires lenders to:
- disclose the identity of the creditor;
- itemize the amount financed, annual percentage rate, finance
charges, total payments with schedule, and prepayment/late payment
penalties.
- give the borrower two copies of the Truth in Lending notice
explaining the right to rescind.
Once full disclosure is made the borrower may rescind
the contract for any reason within three business days
(business days include Saturday, but not Sundays or Federal holidays).
If disclosures were not made or made incorrectly you have three
years to rescind, but the right is “cut-off” if your
entire interest in the property is sold or transferred.
How to rescind:
1. Follow the instructions in the contract.
2. If no instructions were given, mail a written notice advising
the lender of your desire to rescind. Send the notice by registered
mail to ensure its receipt and keep copies of all paperwork
related to the loan transaction. [Sample rescission letter]
What happens next?
1. The lender has 20 days to return all money or property and
release any security interest.
2. They are not entitled to finance charges; rescission cancels
the contract and makes it as if it was never entered into.
3. If you received money or property from the lender you may hold
on to it until the lender shows it no longer has an interest in
it and returns any money you paid. Than, you must offer to return
it, but if the lender does not claim it within 20 days, you may
keep it.
You do NOT have a right to rescind if:
- your loan is to buy/build your principal residence or refinance
current balance with the same lender.
- a state agency is the lender for the loan.
2. The Home Ownership and Equity Protection Act
protects consumers from excessive fees and interest rates and
applies to a:
- 1st mortgage IF the annual percentage rate is more then
eight percentage points above the rate on Treasury securities
of comparable maturity; same lender;
- 2nd mortgage IF the annual percentage rate is more than
ten percentage points above the rate on Treasury securities
of comparable maturity; or
- loan where the total fees payable by consumer at/before closing
exceed the larger of $510.00 of the total loan amount or eight
percent of the total loan amount.
This Act applies if the lender meets all the disclosure requirements
of the Truth in Lending Act (mentioned above) plus the following:
- The lender must give written notice that the borrower has three
business days to decide whether to sign the loan agreement and
the loan need not be completed;
- You must receive a warning that the lender will have a mortgage
on your home and that you could lose the home for failing to make
payments; and
- The lender must disclose the annual percentage rate, payment
amounts, and total amount.
- If you have a variable rate loan, the lender must disclose that
the rate and monthly payment may go up. The lender must state
the maximum monthly payment.
3. The Real Estate Settlement Procedures Act,
prohibits kickbacks between different parties in the real estate
settlement process, and also requires lenders to provide a good
faith estimate for all the costs of a particular loan. It was
designed to protect consumers from needlessly high closing costs.
The Act prevents lenders, realtors, and title companies from engaging
in providing undisclosed kickbacks to each other. [Sample complaint
letter]
4. The Consumer Mortgage Protection Act is a
Michigan statute that covers:
- loan transactions;
- home improvement contracts which are secured by first liens,
subordinate liens, or other liens; and
- land contracts on real property located in Michigan and used
by the applicant or borrower as its principal dwelling.
The statute does NOT cover the following loan
transactions:
- Loans in which the loan proceeds are used to purchase a dwelling.
These loans are sometimes referred to as “purchase money loans;”
- Reverse mortgages;
- Open-end credit in which the lender reasonably expects the borrower
to access multiple advances.
If you are a victim of a predatory lender:
1. Sometimes the best choice is to seek the advice of an attorney.
If you do:
Keep all paperwork from the suspected predatory transaction.
a. Mortgage
b. Promissory Note
c. Settlement Statement
d. Application papers
e. Advertisements, etc
Document all contacts in detail (what was said, promised, and/or
implied)
State Bar of Michigan Referral Service: (800) 968-0738
Legal Hotline for Michigan Seniors: (800) 347-5297
2. It may also be appropriate to notify the proper governing agency
of the fraud.
State Attorney General’s Office or Attorney General (Your State)
PO Box 30213
Lansing, Michigan 48909
www.michigan.gov/ag or www.naag.org
Department of Labor and Economic Growth/Financial and Insurance
Services www.michigan.gov/dleg
If the fraud is criminal, contact your local police department.
www.officer.com/links/agency_search
For more information on the Three-Day Cancellation Rule, contact
the Federal Trade Commission at 1-877-FTC-HELP. www.ftc.gov
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Victim's Guide to Predatory Lending
