“Predatory lending” is a rather general term in legal circles. It refers to a plethora of “unfair” and/or deceptive financial practices engaged in by members of the consumer finance industry, and it can apply from to practices engaged in by a national bank in Manhattan or the payday loan kiosk in Flushing. Because “predatory lenders,” the term used to refer to those who engage in predatory lending practices, generally target low-income, elderly, and minority customers who might otherwise have difficulty securing financing, it is illegal to engage in predatory lending practices in New York. However, the law must specifically prohibit the practice engaged in, such as deceiving an individual into signing a ballooning mortgage note, in order to entitle you to relief.
Common Predatory Lending Tactics
The New York Attorney General’s Office has taken a stance against predatory lending and identified “red flags” in the lending industry that may denote you’ve been a victim of predatory lending. If you’ve entered into a loan agreement under one of the following or similar circ*mstances, especially if you’ve mortgaged your house in the process, it is important to contact a Long Island lending attorney immediately, even if you have yet to experience the adverse effects of the loan:
- Door-to-door or telemarketing solicitations;
- Loans directly through a construction company;
- You were “guaranteed” loan approval regardless of credit history, and
- You felt pressured to sign the documents before you were ready. For example, some companies will claim the interest rate offered might “expire” before you have time to fully read the agreement or consult with an attorney.
If you or a loved one has taken a loan under the above-referenced circ*mstances, according to the Attorney General’s Office you and your attorney should be looking for the following:
- Equity Stripping – Occurs when a loan is secured by the equity in your home, regardless of your credit. Often, the lender will anticipate your inability to make payments and may quickly foreclose on your home at the first sign of default;
- Loan Flipping – Again, when a predatory lender anticipates that you will not be able to make the necessary payments on an otherwise fair loan, he or she will continue to offer to refinance your loan under longer, less generous terms. The fees and terms of the loan will grow exponentially, and you may begin to believe there is no way out;
- Forced Purchases/Packing – Even if the initial terms of a loan seem generous on their face, when you proceed to close you may be forced to purchase “insurance” and pay for a variety of services you do not otherwise require; and
- Ballooning – This was a common reason for the financial crisis in 2008. A “ballooning” mortgage, as its name implies, is a short-term mortgage that offers relatively low payments and interest rates; however, if the terms of the loan are read carefully, at the end of a certain temporal term, say 5 years, the entire balance of the loan will come due. Most consumers will not be able to pay the balance, and this lends itself to loan flipping, where the consumer must continue to refinance her loan, gaining nothing and paying little to no equity on the loan in the process.
Types of Predatory Lending
Even if you don’t realize it, predatory lending is common in New York and manifests in different forms. Payday loans, which are short-term loans provided in advance of payday, are actually illegal in New York because many lenders require access to the borrower’s bank account as collateral for the loan. Further, these predatory lenders are again anticipating that you will be unable to both make your payments on the loan, which can have close to a 400% annual interest rate and cover the expenses that necessitated the loan in the first place. Again, the goal is to trap you in a perpetual “loop” of refinancing where the interest is so high the loan never gets paid off. Financial scams such as payday and “advance fee” loans are ever evolving, and even though New York law prohibits such financial scams, especially because of the disproportionate way predatory lenders target low-income individuals, few will yield before you take legal action.
Predatory Lending and Your Mortgage
In New York, predatory lending is a complete defense to foreclosure litigation, and New York Courts have dismissed foreclosure actions at the summary judgment stage of litigation after finding that the lender engaged in predatory lending tactics. New York Banking Law Article 1, Section 6-l prohibits lenders from engaging in certain behaviors involving “high-cost home loans.” For example, “ballooning” mortgages are illegal unless the term of the loan is over 15 years, and the scheduled payments of such loan may not exceed 2x the average payments over the course of the loan’s lifetime. Further, high-cost home loans may not contain provisions that increase interest rates after default or acceleration of the mortgage note, and “loan flipping” is strictly prohibited. New York law also prohibits “packing,” meaning that a lender cannot sell you insurance or force you to make additional purchases in conjunction with the loan. A violation of New York’s Banking laws can lead to a dismissal of a foreclosure complaint against you with prejudice and even a return of payments made. New York Banking Law Section 6-l(10) provides that if a lender is found to have engaged in predatory lending practices by the court, “the homeloan agreement shall be rendered void, and the lender shall have no right to collect, receive or retain any principal,interest,orothercharges whatsoeverwithrespectto the loan, and the borrower may recover any payments made under the agreement.” You have rights as the borrower if you have been taken advantage of by predatory lenders, and those rights extend to a cancellation of the mortgage note as well as the return of payments made, which can free you from an otherwise perpetual state of indebtedness.
How New York Courts Treat Predatory Lending
In cases in which predatory lending is egregious, courts may rule that this is a successful defense to a foreclosure. However, the predatory lending tactics and actions must be nearly crystal clear for a court to rule in favor of a defendant in a foreclosure action. For example, in the case of LaSalle Bank, N.A. v. Shearon, 19 Misc. 3d 433, 850 N.Y.S2d 871 (N.Y. Supp. 2008), the court only ruled in the defendant’s favor because the plaintiff failed to offer “one scintilla of evidence” that they took the proper care to ensure that the borrowers could repay the mortgage. The “one scintilla” language is strong, which supports the notion that courts in New York require serious and dramatic circ*mstances before they are willing to cancel a loan due to predatory lending. In reality, this defense is not as commonly successful as it possibly should be as the courts do not often place significant priority on this issue.
Contact a Long Island Predatory Lending Attorney Immediately to Discuss Your Rights
Whether you have felt the negative effects of a predatory lending practice or not, if you believe you may have entered into a high-cost loan that violates New York’s predatory lending laws, you may be entitled to cancellation of the mortgage note and compensation. It is essential to have a New York mortgage and foreclosure attorney review the terms of your loan, especially if you felt pressured to sign the loan documents at the time of closing. A lawyer will be able to analyze the terms of your loan to determine whether you have been illegally taken advantage of by a predatory lender, and he may be able to assist you in avoiding further financial harm. Ronald D. Weiss, P.C., Attorney at Law is your premier foreclosure attorney on Long Island, serving both Nassau and Suffolk County residents. He can analyze the specific facts of your case in order to determine whether your lender has violated the terms of New York’s Banking laws and, if so, he may be able to prevent foreclosure on your home both immediately and in the future. Contact him today online or at 631.271.3737 for a no-risk consultation.
