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I want to talk for a minute about predatory lending practices that can be used as a defense
and even as a sword in foreclosure actions. Now let's start out with what is the definition
of predatory lending? In simple terms, predatory lending is when a bank or a lender makes a
loan that they know has a very high likelihood of going into default. And if you're like
me the first thing you think of is that that doesn't make any sense. Why would any bank
make a loan with a very high likelihood of going into default. And here we get into again
the fundamental changes that have occurred in lending. Traditionally when you went to
the bank to borrow money to buy a home a mortgage loan that loan stayed with the bank. It was
the bank that lent you the money and they made their profit off the interest that you
paid. In the '90s when we got into the selling of these
loans and the securitization of the loans, the bank or lender is no longer making money
off the interest that you pay. They're making their money off of immediately turning it
around and selling the loan. So obviously if they're not going to have the loan anymore
their concern about whether or not you're going to be able to pay it over the long term
goes down dramatically.
Now there are numerous things that can qualify as predatory lending. I'm just going to go
over a couple of them here. One of them that is very common is when the lender accepts
income and expense information about the borrower that is not true. That happens a great deal.
It certainly happened a great deal in the '90s and the early 2000s. In fact banks would
often say we don't even want to know what your income is. Just sign the statement that
says you make X amount of money and we'll make the loan on that basis. A very common
predatory lending practice and one that the courts clearly understand is when a lender
qualifies the buyer at the lowest possible rate on the loan. For instance in the adjustible
rate world someone might start out with a loan that's three, three and a half, four
percent. But if you read the language about how the loan can be adjusted, that loan could
ultimately get to six, eight or 10 or more percent in interest. So while the person may
be able to pay the loan at three percent. If you triple or quadruple that interest rate
there's absolutely no way that they're going to be able to pay it. But when they do the
qualification and they come back and tell the buyer they're qualified, they did it at
the lowest interest rate and the bank knows good and well that the interest rate is not
going to stay at that rate for the duration of the loan.
Another method is what we call packing the loan. And this is when you fill up the transaction
with a lot of exhorbitant fees for things like credit life insurance, credit disability
insurance, all of which will dramatically increase the payments yet really provide no
substantive benefit to the borrower and the banks all know it. These predatory lending
practices if they're discovered in your situation can have a dramatic influence on a foreclosure
action because we can use those as a tool not only to defend the foreclosure action
but actually to file a counter claim, a lawsuit back against the lender for these predatory
lending practices and request a jury trial in doing so. And in that process we fundamentally
now have changed the dynamic of what's going on. It's no longer just a lawsuit where they
come in and say well judge, they didn't make their payments so they're in default we're
entitled to foreclosure. Now we've wrapped all of this stuff up in what's now going to
be a jury trial over the damages related to these predatory lending practices. And common
sense tells you now everything has changed. Not only in terms of what the issues are but
the timeline of how long it's going to take to get all of this resolved.