Beware of Predatory Lenders
Predatory lending practices take advantage of consumers. The intent is to defraud you, the consumer, of your valuable equity in your home, one way or the other.
What exactly are predatory lending practices? Well, the Department of Housing and Urban Development (HUD) lists 11 things you can do to protect yourself:
- Get educated! Before buying, attend a homeownership education course offered by HUD-approved non-profit agencies.
- Shop around when selecting a real estate professional. Interview several real estate agents before you sign up with one. Get references. Check them.
- Be informed! Get information about the prices of homes in the neighbourhood where you want to buy. That way, no one can get you to pay too much.
- Protect yourself! Always have a new property inspected by a properly qualified and licensed home inspector as a condition of sale. Don't buy without this inspection, unless you are willing to assume the risk. If the home inspector finds problems, negotiate up front who is going to pay for repairs. If it ends up being you, be sure you can afford repairs on top of the cost of the property.
- Shop around when selecting a lender! Compare costs, and especially those fees that are listed in the fine print. Be suspicious of anyone who is pushing you towards one lender and one lender only.
- Tell the truth on any loan application! Do not be convinced to lie about your income, your down payment source, your debts or their amounts or how long you have been employed. All this information should be perfectly accurate to your knowledge. Lying on a mortgage application is a fraud. It leaves you open to being blackmailed.
- Never borrow more than you can afford! If you can't afford to repay a higher loan amount, you risk losing your home and all of the equity you put into the property. Do not be convinced to take extra on your mortgage if that is not in your best interests.
- Do NOT sign any blank document. All documents that you sign should be fully completed with all fields filled in; otherwise, if information is filled in after you have signed, you may still be bound by the completed terms. If you find a blank, either print in "N/A" or put a stroke through the blank so that it is obvious that it is intentionally blank.
- Read everything! Don't sign anything you don't understand. Ideally, you would have a lawyer review any and all documents before signing, but even a trusted real estate professional can be a great help. If you don't have a lawyer, you can also ask for help from a housing counsellor with a HUD-approved agency. One of the favourite practices of predatory lending is to charge fees for unnecessary or non-existent products and services.
- Be suspicious of suspicious dealings! If the cost of a home improvement goes up if you don't accept the contractor's financing, then something isn't right.
- Be honest yourself! Are you buying the property to rent? State that up front. Do not say that you will occupy the home if that is not your intention.
Where can you go for help if you've been victimized? Since the spring of 1999, HUD has been actively involved in combating predatory lending through research, regulation, consumer education and enforcement actions against lenders, appraisers, real estate brokers, and other companies and individuals that have victimized homebuyers. You can check their website for more information, as well as links to other resources.
Not only has HUD become involved, but there are also a number of federal organizations in the US that will help you if you think you have become the victim of predatory lending practices. Many states have local support for you, if you have a problem of this nature. You can find these organizations through the HUD website as well, or by searching your local state government site.
What if your lender is threatening you with foreclosure or other penalties? There are also housing counselling agencies that can help you, especially if the predatory lending practices are resulting in a threatened foreclosure.