Ask the Advocate

By Miami-Dade Consumer Advocate Leonard Elias, Esq.

What should you do if you are the victim of a predatory loan and you can’t pay your mortgage?

Foreclosures are escalating at an alarming rate.  In 2007, Florida ranked second in the number of home foreclosures, affecting one in every 95 Florida households. Miami ranked eighth among the metro areas in Florida.

Many foreclosures stem from what’s called a predatory loan.  This is a term that was only a blip on the radar screen in years past.  Now “predatory” is the word of the year and it’s hotly talked about in presidential campaigns.

Just what is a predatory loan?  There are many types of predatory loans, but basically, this happens when a lender misleads, tricks and sometimes pressures consumer into taking out home loans at excessive costs without regard to their ability to repay.

The Florida Fair Lending Act, Chapter 494, Florida Statutes, prohibits predatory tactics on high cost home loans, including:

* Charging prepayment penalties for longer than three years

* Increased interest on loans going into default

* Balloon payments on loans that mature in less than 10 years

* Extending credit regardless of a borrower’s ability to pay

* Making direct payments to home improvement contractors

* Calling a loan due even though the borrower has complied with the terms of the loan

* Refinancing a loan during the first 18 months, unless there is a benefit to the borrower

* Offering to originate a loan at the borrower’s home without a prearranged appointment

* Charging late fees that exceed five percent of the payment

The law also requires lenders to disclose certain facts about the loan at least three days prior to closing the deal, including:

* A mortgage will be placed on the borrower’s home, and they could lose the home in the event of foreclosure.

* Interest rates and terms can vary, depending on the lender or broker.

* Borrowers should consider consulting a HUD approved credit counseling agency or a financial advisor regarding financing of their home.

* Debt consolidation can be a useful tool if the borrower does not take on additional short-term debts.

* Loan applicants do not have to accept the loan, even though they have filled out an application.

In a recent court decision, a court found that a lender engaged in predatory and unfair lending when it made home loans to individuals who could not afford them.  In that case, foreclosure proceedings were stopped because the mortgages were unfair .  The court ruled that a subprime loan can be stopped if it meets four conditions:  The loan must have a low introductory interest rate; after the initial period, the rate must increase at least 3 percentage points; monthly payments must be equal to more than half the borrower’s income; and the mortgage must not have required a down payment.

If you are having trouble keeping up with your mortgage payments, the Consumer Services Department provides these tips to avoid foreclosure problems:

• Don’t ignore the problem.
• Contact your lender as soon as you realize you have a problem. Be honest:  lenders do not want your house.  They have options to help borrowers get through difficult times. Open and respond to all mail received from your lender.
• Understand your options. Information can be found on the internet at www.hud.gov/foreclosure/index.cfm and www.fha.gov/foreclosure/index.cfm.
• Get outside advice.  Find a HUD-approved housing counselor in your area by calling 1-800-569-4287 or on the internet at www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm, or contact the Homeownership Preservation Foundation Hotline at 1-888-995-HOPE for a personal consultation.
• Avoid foreclosure prevention companies. Your lender or a HUD-approved housing counselor will help you for free if you contact them.
• Beware of foreclosure scams. Predatory lenders often target people in financial distress.  Be suspicious of “bargain loans”, “foreclosure solutions,” promises to “cure” your default, or “repair your credit.”  Don’t sign any documents you do not understand:  if you sign a deed this means that you are selling your home.   Additional tips can be found on Freddie Mac’s “Don’t Borrow Trouble” website:   www.dontborrowtrouble.com/en/anti_predatory.html.

For further information or if you believe you are the victim of predatory lending, visit the Miami-Dade County Housing Finance Authority website at www.miamidade.gov/hfa or call their Anti-Predatory Lending Hotline at 786-331-5348.

Finally, if you believe you may be a victim of mortgage fraud, visit Miami-Dade County Mayor Carlos Alvarez’s Mortgage Fraud Task Force website at www.miamidade.gov/mayor/mortgage_fraud.asp or call the Miami-Dade Police Department’s Economic Crimes Bureau at 305-471-1090.

ASK THE ADVOCATE

By:  Leonard Elias, Esq.

Are you facing the threat of losing your home?  Experts say that millions of people are at risk of losing their homes because of predatory loans, job loss, divorce, medical reasons, and death.  Be wary of individuals and companies offering to rescue you out of your difficult financial situation. 

These companies advertise over the Internet and in local publications, plaster posters on telephone poles, and stick flyers in your front door.  These foreclosure rescue consultants get your attention by promising that they can “Stop Foreclosure Now.”  Just how does the scheme work? 

In some cases, the person tells you that he can make a deal with your lender to save your house if you pay a fee first. You may be told not to speak to your lender, lawyer or credit counselor, and to let the “consultant” negotiate the details. Once you pay the fee, the swindler takes off with your money.

In another case, the scam artist offers to “buy” your property by satisfying the amount that is overdue on your loan. He convinces you to move out and deed the property over to a third party. You are given the option of renting the property with the option to buy it back later. The rent payment on the home is often higher than you can afford. When you cannot make the rent payment you face eviction from your home. Or, if you express a desire to buy back the property, the scam artist fixes the price of the home higher than you can afford. 
Your dilemma can even go further.  In some cases, the initial mortgage has not been paid off and the deed was never turned over, as promised.  Not only are you looking at an eviction from your home, but you still owe for the original loan amount. Some schemers will offer to complete paperwork for you, or ask you to sign a mass of papers, supposedly to acquire a new mortgage. You might even discover that they signed a quit-claim deed to your house. 

In these cases, you face a real risk of your losing money, equity, home, or all three. 

Recently, a consumer protection law was passed by the Florida Legislature to protect you against unscrupulous foreclosure rescue scam artists.

The new law, called the Foreclosure Rescue Fraud Prevention Act of 2008, Florida Statute Section 501.1377, took effect October 1, 2008.  The law prohibits foreclosure rescue consultants from initiating services without first executing a written agreement with the homeowner; or collecting or securing payment before completing or performing all agreed upon services.  

For homeowners who secure services from foreclosure-rescue consultants, the law provides that:

•  The nature and specific details of a foreclosure-related rescue services agreement must be expressed in writing in 12-point upper case type;
•  The homeowner must be given one business day to review the agreement prior to signing; the homeowner must be given 3-business day right to cancel without penalty, which may not be waived by either party;
•  The date of the agreement must not be earlier than the date that the homeowner signs;
•  The consultant must return any payments received from the homeowner within 10 days after receipt of a notice of cancellation; and
•  The notice of cancellation must be printed immediately above the signature line in 12-point upper case type in a specified format.  

If a homeowner conducts business with an equity purchaser, the new law provides that:

•  The nature and entire understanding of the transaction be expressed in writing in 12-point upper case type completed and executed by the parties prior to encumbering or conveying an interest in the residence in foreclosure; 
•  The homeowner must receive a copy of the completed agreement within 3 hours after signing; 
•  The transaction agreement must state the specifications of any option or right to repurchase the property in foreclosure and must comply with applicable federal regulations;
•  A homeowner may cancel without penalty with notification by 5:00 PM on the third business day after signing the agreement; any money paid by the equity purchaser to the homeowner or by the homeowner to the equity purchaser must be returned at cancellation; 
•  The right to cancel may not be waived by either party (at the time an agreement is signed, a notice of the homeowner’s right to cancel is provided); 
•  A homeowner with a right to repurchase the property has a thirty day right to cure any default on three separate occasions (this right must be included in the written agreement);
•  An equity purchaser fully assumers or discharges any liens (an equity purchaser must verify and demonstrate that a homeowner with a right to repurchase has the ability to make the required payments in order to exercise the repurchase option;
•  A rebuttable presumption exists that the homeowner has a reasonable ability to make the required payments to repurchase the property, provided the homeowner’s monthly expenses do not exceed sixty percent of the homeowner’s monthly gross income;
•  The price to repurchase must not be unreasonable (a rebuttable presumption arises between the equity purchaser and the homeowner if the repurchase price is greater that 17% per annum more than the total amount paid by the equity purchase, except under certain circumstances).  
•  There is a rebuttable presumption that any lease-option in the foreclosure-rescue transaction is a loan and mortgage, which means that the leasee cannot be displaced from the house without going through the judicial foreclosure process. 

Any foreclosure rescue consultant who violates any provisions of the law commits an unfair and deceptive trade practice subject fines up to $15,000.00.              

If you are having trouble paying your mortgage or who have received a foreclosure notice you should contact your lender immediately. They may be able to negotiate a new payment schedule. Legitimate help is available through the Homeownership Preservation Foundation (HPF), a nonprofit organization that operates the national 24/7 toll-free hotline (1-888-995-HOPE) with free, bilingual, personalized assistance to help at-risk homeowners avoid foreclosure.  To learn more, visit www.ftc.gov/bcp/edu/pubs/consumer/credit/cre42.shtm