One of the defenses we can offer up in a foreclosure case is that the loan issued to the homeowner was “unconscionable.” An unconscionable home loan is a predatory home loan issued through fraud, misrepresentation, or coercive practices.
Fraud, misrepresentation, and coercion were already illegal, of course, but the federal Homeownership and Equity Protection Act makes certain key lending practices illegal as well.
HOEPA
HOEPA regulates the fees and interest rates lenders can charge. It also demands the lender make certain disclosures.
From the FTC:
“The Home Ownership and Equity Protection Act (HOEPA) took effect in October 1995. Congress passed the law to stem the growth of certain predatory lending practices. HOEPA amended the Truth in Lending Act (TILA) and provides special protections for consumers in certain non-purchase, high-cost loans secured by their homes. In loans covered by HOEPA, the lender must give the borrower certain disclosures in writing at least three business days before closing. This information includes a notice that the consumer could lose his/her home and any money put into it, if he/she does not meet his/her obligations under the loan. The notice also requires disclosure of the annual percentage rate, amount of payments and, if applicable, certain variable rate information. The law also bans from high-rate, high-fee loans such terms as balloon payments due in less than five years, increasing the interest rate at default, and most prepayment penalties. Lenders also are prohibited from engaging in a pattern or practice of lending based on home equity without regard to consumers’ ability to repay loans (“asset-based lending”) and making direct payments to home improvement contractors. Other TILA provisions require disclosure of key credit terms and give consumers three days to rescind after they sign loan documents.”
What happens if a lender violates HOEPA?
You may be able to sue for damages. Often, you will be seeking to offset the remaining balance of the loan against the balances to put an end to the loan altogether, then collecting whatever the difference is.
If the offset doesn’t cover the outstanding balance, you may be able to cancel the loan instead.
Pennsylvania Unfair Trade Practices and Consumer Protection Law
HOEPA is a federal law, but you’re also protected by state law. Lenders who misrepresent their products or services or who fail to make certain disclosures will also run afoul of this statute.
An Unfair Loan Isn’t Enough
Loans that are unfair or difficult to pay are not necessarily unconscionable. The court has ruled in favor of lenders on more than one occasion.
You can’t say, for example, “Well, they knew I couldn’t pay the loan when they offered it to me.”
That may be true, but there’s a presumption you also knew what kind of money you made, as well as the mortgage payment amount. The amount may be outrageous or the balloon payment may have caught you by surprise, but the loan may well stand nevertheless.
How do I know I have a case for an unconscionable loan?
Contact us to go over your case. Bring all your loan documents with you. We will be able to tell you if this is a viable foreclosure defense strategy for you.
If it isn’t, don’t worry. We’ve got other tools in our toolbox. We’ve helped thousands of Philadelphia homeowners defend themselves against their mortgage companies so they can stay in their homes. We can help you, too. Best of all, this initial consultation is free. Call now.
See also:
Philadelphia Foreclosure Law Firms: A List of Firms That May Have Sent You Correspondence
Received a Letter from One of These Entities or Law Firms? The Foreclosure Process May Have Started
When Should Chapter 13 Be Used as a Stalling Tactic?
Modifying Your Home Loan While In Bankruptcy
Federal Courts: Foreclosures Must Comply With FDCPA