Predatory lending encompasses a number of unfair, and often illegal mortgage lending practices. Predatory lending practices take advantage of a borrower’s lack of understanding or knowledge about mortgages and loans, and frequently ignore whether or not the borrower has the financial ability to repay the loan.
Who Is At Risk for Predatory Loans?
Very often those who are least able to afford to lose what little they have are the ones most at risk of being victimized by predatory lenders. Often, unscrupulous lenders will target:
Predatory lending can take many forms, but its effect is uniform— it creates a never-ending spiral of debt. This results in serious financial hardship for individuals and their families.
What to Watch Out For
Here are just 2 examples of predatory lending practices that you should look out for:
1. Balloon Mortgages.
In residential lending situations, balloon mortgages can constitute predatory lending. This happens most often when a borrower is convinced (or enticed) to refinance a mortgage (secured by a deed to the borrower’s home of course) that has low payments upfront but requires a “balloon” payment later on in the loan. For example, a loan could require low monthly payments for four years and then have a balloon payment in the 5th year of the loan.
These loans are attractive to people who want to own their own home but cannot afford the payments. The initial low mortgage payments are attractive because they let a borrower purchase a home, but the problem is that these borrowers will never (or very rarely) be able to afford the higher balloon payment when it comes due.. As a result, when the balloon payment comes due, the borrower will either default on the loan—triggering a foreclosure—or he will refinance with the lender for higher fees and interest—getting deeper and deeper in debt.
2. Asset-based Lending.
This is the practice of encouraging a borrower to borrow more than he can afford to repay based on the “equity” in the real property and not based on the borrower’s income.
This practice encourages unsuspecting and less sophisticated borrowers to look at how much of a loan they “qualify for” instead of what they can afford to repay. Again, when the monthly payments come due, the borrower frequently defaults on the loan, losing his/her home to foreclosure.
Protect Yourself. Find Out Your Legal Rights.
If you believe your loan may be a predatory loan, contact us. We are Georgia real estate attorneys. Our offices are in Cumming, Georgia and we serve clients in and around Atlanta, Marietta, Roswell, Sandy Springs, Kennesaw, Forsyth County, and a number of other counties in Georgia. To schedule your free phone consultation, call 770-888-7707. Or you can contact us here, or send inquiries by e-mail to: email@example.com.