If your mortgage lender acted deceptively, unethically, unfairly, or in a fraudulent manner when you took out your loan, it might have engaged in unfair lending practices and you might be able to successfully challenge a foreclosure action. Read on to learn more about fighting a foreclosure by showing that your lender engaged in illegal lending practices.
The term "unfair lending practices" encompasses many different type of activities when it comes to loan origination and is frequently used to describe any fraudulent, abusive, discriminatory, or deceptive lending practice. For example, the following actions can constitute unfair lending practices:
The main protections for consumers against unfair lending practices associated with residential mortgage loans are found in the Truth in Lending Act (TILA), as well as in an amendment to TILA called the Home Ownership and Equity Protection Act (HOEPA).
Under TILA, lenders must make certain disclosures about the cost of borrowing in the loan documents, including the annual percentage rate, the finance charge, the amount financed, the total payments, and the payment schedule. Lenders that don't provide accurate disclosures are in violation of this law.
HOEPA prohibits late fees greater than 4% of the past due payment and balloon payments are generally prohibited except under limited circumstances, among other things.
Both TILA and HOEPA permit you to sue for money damages, including a refund of any financing costs you paid. In some cases you may be able to rescind (cancel) your mortgage. With a rescission, the lender must give back closing costs and finance charges, and you must return the present balance of the mortgage.
Rescinding the mortgage will stop a foreclosure, but this usually only works if you can arrange a refinance to return the remaining loan principal to the lender. In a robust real estate market this is not a problem, but with a property that's underwater, refinancing might not be possible and a court might require you to demonstrate that you can actually complete a valid tender before allowing the rescission.
Creditor overreaching and predatory lending are two common types of misconduct that constitute unfair lending practices.
Creditor overreaching typically occurs in one (or both) of the following ways:
Both types of overreaching may be present in a single transaction. If so, this can quickly lead for a foreclosure since the loan is most likely unsuitable and unsustainable for the borrower.
Some examples of creditor overreaching include:
Creditors that engage in these types of acts may have violated TILA and also be subject to any number of other legal claims, including violations of state unfair and deceptive practices laws and fair lending laws.
Predatory lending is any type of unscrupulous lending practice where a lender takes advantage of a borrower. Low-income, elderly, or otherwise vulnerable people are often the target of this type of lending.
The following are a few examples of predatory lending:
A court will consider all of the circumstances of the transaction to determine whether the situation, taken as a whole, constitutes predatory lending. If a court determines that a loan was predatory, it could order the lender to modify the terms of the loan or cancel the debt, or take any other equitable action.
Unfair lending practices might ultimately cause a borrower to default on mortgage payments, which in turn generally leads to a foreclosure.
The unfair lending practices mentioned in this article represent just a few of the offenses that lenders have been known to commit. There are, of course, others. If you have been the victim of unfair lending practices and are facing foreclosure, you should speak to a qualified attorney who can advise you about what to do in your circumstances.
To learn more about different foreclosure defenses, see Defenses to Foreclosure.