Predatory lender? - Posted by Al

Real Estate Investing Real Estate Law
1

Posted by Sparks on September 05, 2008 at 09:27:00:

Al,

Their have been many well-documented instances of Predatory Lending in the mortgage industry, and no doubt many more will come to light in the coming months.

I am not an atttorney and am not offering legal advice but were I in your shoes, I’d bone up on the subject of Predatory Lending to see if the definition(s) fit your particular circumstances.

After gaining an understanding of the issues involved you can then decide if you want to contact an attorney and proceed from there.

I can’t vouch for the link below and have no interest in whoever they are, but it might be a useful place to start. Check out their links “OCC Pred. Lending,” and “FTC Deception.” Then, use your favorite search engine to look for other helpful sites on the internet.

www.foreclosure-fight.com/index.htm

Good Luck,

Sparks

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Predatory lender? - Posted by Al

Posted by Al on September 05, 2008 at 08:01:20:

Hey Guys,

My accountant thinks our lender on an investment property was predatory since he knew we couldn’t afford it after a year or two. Question is, with all the new laws being passed, what’s the current recourse if any? I’m just looking to survive and not lose everything here. I see made a mistake, but maybe I should push back a little. What do you think?

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Tell Us Why!! - Posted by Jimmy

Posted by Jimmy on September 08, 2008 at 05:29:18:

WHY does your acct think the loan was predatory? give us some details.

what was the interest rate? or spread? points? what was pre-payment penalty? other terms? how much of a down payment did you make? what were your credit scores? how much cash in rserve did you have? [basically, help us understand the terms of the loan, and how much risk the lender ws taking on with you as a borrower.]

you have a ton of very experienced people here. we have no agendas or reasons to lie to you. but we need specifics.

for example: if (a) your credit is poor, (b) you put very little or nothing down, and (c) you have very litle cash in reserve----->then a 14% loan is not unreasonable, and 2-3 points in top of that. a lender in this situation is taking a huge risk, and deserves to be compensated.

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Re: Predatory lender? - Posted by Max-Va

Posted by Max-Va on September 07, 2008 at 19:39:33:

You made a mistake calling your post “Predatory lending”
You do not give one example of fraud here, that is why you are getting the responses you have gotten.

Now. yes the housing reform bill of 2008 is going into effect. The law is mainly for owner occupied primary residences. There is no help for investment properties or second homes.

I suggust you contact the lender and see what you can work out. You tried and lost, so own up and move on.

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Usury normally NOT in comml/invstmt deals - Posted by John Merchant

Posted by John Merchant on September 06, 2008 at 15:52:35:

If the loan was consumer, residential or personal, then it maybe was covered by your state’s usury laws.*

But if for business, commercial or investment purposes, probably not as businessmen/women know what they are paying for is opportunity and if there’s enough profit (or potentially so) built-in, the cost might be quite irrelevant.

And usually, legislatures are smart enough not to try to interfere with business or commercial deals as they don’t give a Socialist’s A@@ what happens to a “dirty capitalist pig businessman”.

As a HML (hard money loan)lender I’m always telling callers who decry the interest rate that the lender wants: If there’s not enough profit on your deal to pay for the money, go find another deal.

I personally have paid in excess of 21% for money for deals when warranted and I’ve been grateful for the money at the cost.

*Every state’s usury laws are different but you can find them pretty quick by Googling “WA State usury” etc.

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If the law was passed after you signed - Posted by Rich-CA

Posted by Rich-CA on September 05, 2008 at 15:54:28:

then it does not apply to you. Ex post facto (after the fact) laws are specifically banned by the US Constitution so the government cannot change the rules on you after you do something. If it wasn’t illegal when you signed, then it is not illegal. You could try and maybe they will settle, but if they fight, understand that a fair judge will not hold them to rules that did not exist at the time.

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Re: Predatory lender? - Posted by REGuy

Posted by REGuy on September 05, 2008 at 08:16:20:

I missed the part about them holding a gun to your head? How much money do you have to sue?

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Re: Tell Us Why!! - Posted by Al

Posted by Al on September 08, 2008 at 06:14:23:

Not to get into details but the lender knew all my accurate and factual income and expenses. The appraisel came back high and they offered a furniture allotment to come back to us when we closed. It’s on the mortgage documents and reviewed by my attorney. I told the mortgage company that I couldn’t afford the payments and they said that the furniture allotment would take care of that for a couple years. Well, turned out that they did this with a lot of people in the town and the rents and tourists never came in. Kinda like Miami. I was honest about how much money we have, make, and debts. It’s clear that we don’t have $6K extra at the end of the month. So, even though my attorney said that it was ok (for us) and the mortgage company agreed to the loan, now we are sitting on a HUGE mortgage with out a way to sell it as planned. The loan itself is reasonable, but after we signed I heard about this happening and I think the mortgage guy and the developer are in it together. I consulted the attorney again and he said because we documented the “furniture allotment” and it’s on the mortgage docs that I’m clear. It’s the sellers group that might be in trouble. The loan was sold to another company in 4 months or so.

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Re: Usury normally NOT in comml/invstmt deals - Posted by Al

Posted by Al on September 07, 2008 at 06:56:40:

Well, we purchased it as a second home/vacation home. We’ve rented it to help with the mortgage but it only covers 1/3 of the mortgage. The gamble failed due to the market downturn and all I’m wondering is if there is ANYTHING I can do (short of shorting it or foreclosure) to make it.Didn’t legislation just get passed that lets these loans get trimmed to what they are worth now instead of then?

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Re: If the law was passed after you signed - Posted by Al

Posted by Al on September 05, 2008 at 16:10:34:

But, then what’s the point of the law? I keep reading that the law is the result of predatory lending so it would be worthless to…everyone! I signed during the height of the real estate boom and then it quickly fell apart. Interesting.

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Re: Predatory lender? - Posted by Al

Posted by Al on September 05, 2008 at 09:35:21:

Not talking about sueing. I didn’t coin the term Predatory Lending. Do you think it’s ok when an elderly person gets taken advantage of? When you depend on industry experts to consult with and they steer you in direction that benefits them and you take the loss, is that not un-ethical? I learned a valuable lesson on this: Don’t trust anyone in the real estate industry. Do the research yourself. Become the expert. Isn’t the government forgiving or paying portions of mortgages in this category?

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Re: Predatory lender? - Posted by Al

Posted by Al on September 05, 2008 at 08:38:58:

Not talking about sueing. I didn’t coin the term Predatory Lending. Do you think it’s ok when an elderly person gets taken advantage of? When you depend on industry experts to consult with and they steer you in direction that benefits them and you take the loss, is that not un-ethical? I learned a valuable lesson on this: Don’t trust anyone in the real estate industry. Do the research yourself. Become the expert. Isn’t the government forgiving or paying portions of mortgages in this category?

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Re: Tell Us Why!! - Posted by Sparks

Posted by Sparks on September 08, 2008 at 14:02:37:

Al,

You wrote:
“Not to get into details but the lender knew all my accurate and factual income and expenses.”

Well, the fact is the devil is in the details and you haven’t provided very many (see Jimmy’s post). You haven’t posted the loan terms, the date the loan was signed, the lender, or the state where you are located. Any or all of these may have a direct bearing on whether you were a victim of a predatory lender.

That said, I’m sure it’s obvious to you that opinions are running against you as to whether you are truly a victim – versus your beng a willing participant – allowing this situation to occur thorough your complicity, wishful thinking, willful ignorance, or whatever.

I think this is the reason you aren’t getting any sympathy from the otherwise very experienced, savvy and generally sympathetic guys who post here.

Why? You wrote: “The appraisel came back high and they offered a furniture allotment to come back to us when we closed.”

Oh! OK! So, you agreed to a mortgage that may well have exceeded the value of the house, knowing up front that it was going to be difficult for you at some point! I might be wrong about this but absent the details we don’t know.

But what is clear in the broader sense of the sub-prime meltdown we are now in, is that a lot of loans were willingly accepted by marginally-qualified or unqualified folks who knew going in that the terms being offered were exceedingly generous and might come back to haunt them if anything at all in their personal circumstances changed. Well, things did change.

And, you wrote: …“now we are sitting on a HUGE mortgage with out a way to sell it as planned. The loan itself is reasonable…”.

It looks like you are one of the unfortunate ones that are now upside down on your mortgage, even though, by your own admission, the terms of your mortgage are otherwise OK with you.

I can sympathize with your being upside down on the mortage, but like the others, it’s hard, very hard, to sympathize with someone who just wants to walk away from their obligation.

Al, I’m not flaming you,and I’m not “piling on.” Just looking to provide you with a bit of clarity.

That said, if you don’t wish to provide any further details, here’s a suggestion for you:

Contact whatever organization in your state governs mortgage lenders/brokers. Ask to speak to their staff attorney and see if the details of your loan merit their involvement. Query them about your lender or mortgage broker and whether any action is being taken or has been taken against them. You could also query the office of the attorney general of your state to see if any complaints have been filed against or whether any action is pending or comtemplated against the developer, lender, appraiser.

My 2 cents worth,

Sparks

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And your responsibility - Posted by Rich-CA

Posted by Rich-CA on September 08, 2008 at 11:52:17:

is to not sign and walk away from the deal. Nobody held a gun to your head.

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Re: Tell Us Why!! - Posted by River City

Posted by River City on September 08, 2008 at 07:46:46:

You say the lender knew your “accurate and factual income and expenses.” When you signed the final application at closing, did it have your “accurate and factual income and expenses” listed, or were they inaccurate and not factual? If you signed an application that did not have accurate and factual information (below the statement regarding inaccurate information being a form of fraud), then you committed fraud. You knew the thorn was not a rose.

It appears to most of the responses you have had, that you knew what you were getting in to and that you were willing to go along with the lender. Now that you have somewhat run aground, you are trying to blame it all on the lender.

The new law is meant for loans going forward. They cannot make laws for loans already made if what lenders did was legal at the time. If your lender committed fraud, it appears to me that it was with your blessings. You just wanted to close and did not care how you did it.

I believe that this is a prime example of why the mortgage industry is in the trouble it is in today.

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No - Posted by Rich-CA

Posted by Rich-CA on September 08, 2008 at 11:51:08:

The legislation provides for a workout but the lender is not forced to forgive the shortage.

In addition, this would not apply except for your principle residence, NOT tour vacation home or rental.

Nor is it reasonable for the lender to pay the cost of your error in buying a property you could not afford.

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There are limits on what gov’t can do - Posted by Rich-CA

Posted by Rich-CA on September 05, 2008 at 22:24:19:

and one of those is that it can’t change the rules and then hold people to account for not following rules that did not exist and they had no way of knowing about at the time. It is basic fairness.

One effect I just read about is that as of Oct 1, Fannie will no longer buy loans in NY state due to the nature of their “predatory lending” laws. If you put enough restrictions on something, business people will got elsewhere.