“Predatory lending” happens when a lender uses deception, fraud, or manipulation to convince a borrower to take out a mortgage with abusive or unfair terms. Various federal and state laws exist to stop lenders from using predatory tactics.
If your lender used unfair lending practices when you took out your mortgage loan, you might be able to fight a foreclosure. (To learn what to do —and what not do—if you’re facing a foreclosure, see Foreclosure Do’s and Don’ts.)
Generally, predatory lending means any unscrupulous practice in which a lender takes advantage of a borrower. A court will typically consider a loan to be predatory if the lender:
Borrowers who get predatory loans often end up going through a foreclosure.
Here are a few typical examples of predatory lending practices.
It’s possible, in some circumstances, to stop a foreclosure by raising claims related to the loan’s origination. The mortgage or deed of trust might not be valid or legally enforceable due to unfair lending practices, like fraud or because of violations of federal or state law, or because the terms of the loan are unconscionable. In certain circumstances, you might be able to rescind the mortgage transaction or be entitled to damages (money) or a setoff against the amount you owe on the loan.
Federal laws. Various federal laws protect borrowers against predatory lending practices. The Truth in Lending Act (TILA) requires lenders to disclose the terms and costs associated with a mortgage loan. The Home Ownership and Equity Protection Act (HOEPA), which is an amendment to TILA, also protects homeowners from predatory lenders. (To learn more, see Challenging Unfair Lending Practices in a Foreclosure.)
State laws. Many states also have anti-predatory lending laws that restrict the terms or provisions of certain loans. State unfair and deceptive practices acts (UDAP) statutes, which generally prohibit unfair or deceptive business practices, might also be useful in challenging a foreclosure.
Again, a lender’s misconduct at the time of loan origination can, in certain cases, act as a defense to a foreclosure or as a damages claim. But the laws surrounding unfair lending practices are complicated. If you think you were a victim of predatory lending and are facing a foreclosure, consider talking to a foreclosure defense lawyer.
A foreclosure defense attorney can advise you about relevant predatory lending laws, provide advice about what you can do in your particular situation, and tell you if you have any other potentially valid defenses to a foreclosure.