Predatory Lending: The Road to Bankruptcy

When bankruptcy clients come in to my Atlanta office for their free initial consultation they often express disbelief and dismay and how they ended up in the position of needing to seek the protection of bankruptcy. Often they are behind on their mortgage(s) and fear that they will lose their home through foreclosure or that their wages or even their bank accounts will be subject to garnishment due to unpaid debt.

While there are many roads to bankruptcy, increasingly predatory lending practices, usually in the subprime mortgage market, are responsible for starting the chain of events that ends in bankruptcy court.

One disturbing feature of predatory lending, is that the creditors, brokers and contractors who engage in it target the most vulnerable in our society: the elderly, minorities, women and low and moderate income homeowners. These homeowners historically have less access to traditional low-cost loans. Often subprime lenders target people who already own their own home by offering refinancing at deceptively disadvantageous terms.

So what exactly is predatory lending?

While there is no official definition there are several characteristics and practices to watch out for.

• Loans that are so large in relation to the borrower’s income that there is no way that the borrower can pay them back…EVER!!! The classic example is a loan made to an elderly person on a fixed income where the monthly payment exceeds the person’s total income.
• Loan Flipping: This occurs when loan originators refinance a loan multiple times over the course of a brief time period. Each time the loan is refinanced fees and prepayment penalties decrease the amount of the homeowner’s equity.
• Excessive Fees/Packing: Subprime loans usually have higher fees than traditional mortgages. Often these cannot be justified. Frequently, fees are “packed” into the loan without the borrower’s knowledge or understanding.
• Fraud

If you find that you have been the victim of predatory lending practices please know that help is available. An attorney can help you protect your home and assets through bankruptcy. For a free consultation please contactthe Law Offices of Charles Clapp at (404) 585-0040 or email info@lawcmc.com for more information.