Learning About Hard Money and Predatory Mortgage Loan Foreclosures in Long Island
It’s crucial to comprehend the differences between hard money, predatory, and standard lending techniques in order to successfully navigate the complexity of mortgage loans in New York State. To safeguard their rights and financial security, homeowners who are facing foreclosure need to pay close attention to the terms and conditions of their loans.
Defining Predatory Lending
Predatory lending involves unfair, deceptive, or fraudulent practices by lenders during the loan origination process. These practices are designed to benefit the lender at the expense of the borrower and often include:
- Excessive Interest Rates and Fees: Charging higher rates and fees than what is justified by the borrower’s credit risk.
- Loan Flipping: Encouraging borrowers to refinance repeatedly, each time charging fees and points, which can strip equity from the property.
- Balloon Payments: Structuring loans with low initial payments that suddenly increase, making it difficult for borrowers to keep up.
- Equity Stripping: Providing loans based on the home’s equity rather than the borrower’s ability to repay, leading to foreclosure and loss of the property.
In New York, predatory lending is a complete defense to foreclosure litigation. Courts have dismissed foreclosure actions upon 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 twice 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.
Understanding Hard Money Loans
Hard money loans are short-term, high-interest loans typically used by individuals who cannot qualify for traditional financing. These loans are often secured by real estate and are characterized by:
- Higher Interest Rates: Reflecting the increased risk to the lender.
- Shorter Terms: Usually ranging from one to five years.
- Asset-Based Lending: Approval is based more on the property’s value than the borrower’s creditworthiness.
While hard money loans can be beneficial in certain situations, they can become predatory if lenders impose unreasonable terms or fail to assess the borrower’s ability to repay. In LaSalle Bank, N.A. v. Shearon, the court ruled that the plaintiff’s loan was predatory because the lender did not provide evidence of due diligence regarding the borrower’s ability to pay, violating New York Banking Law governing high-cost loans.
Legal Protections for Borrowers in New York
New York State has enacted laws to protect borrowers from predatory lending practices. The Homeownership and Equity Protection Act (HOEPA), the Truth in Lending Act (TILA), and the Real Estate Settlement Procedures Act (RESPA) set standards for consumer lending. Specifically, the law requires that before a lender can loan money to a consumer, it must review information regarding the applicant’s ability to repay the debt.
If a lender is found to have engaged in predatory lending practices, the loan agreement may be rendered void, and the lender may lose the right to collect any principal, interest, or other charges. Borrowers may also recover any payments made under the agreement.
Defending Against Foreclosure Due to Predatory Lending
Homeowners facing foreclosure due to predatory lending practices have several defenses available:
- Challenging the Lender’s Standing: Ensuring the lender has the legal right to foreclose.
- Demonstrating Lack of Good Faith Negotiations: Highlighting the lender’s failure to engage in fair loss mitigation efforts.
- Asserting Violations of Banking Laws: Pointing out breaches of state or federal lending regulations.
In Wells Fargo Bank, N.A. v. Hughes, the court dismissed a foreclosure action due to the lender’s lack of good faith negotiations, emphasizing the obligation for lenders to engage in fair dealings with borrowers.
Conclusion: Safeguarding Your House in Long Island
Understanding the nuances of predatory and hard money mortgage loans is crucial for homeowners in Long Island. By being aware of the legal protections in place and the defenses available, borrowers can better navigate the foreclosure process and safeguard their homes.
For more detailed information and assistance, visit The Law Office of Ronald D. Weiss, P.C.
