Blog sponsored by Bankrupt-Law.com


Lots of dishonest, aggressive, lenders advertise their loans to homeowners
in financial need - people who have fallen behind on property taxes, need
money for medical bills or need costly home repairs. Instead of offering a
fair loan, these lenders use smooth-talking salespersons whose loans carry
high interest rates, outrageous fees, and unaffordable repayment terms. They
can trick you into taking out loans that you cannot afford to repay. Some
people even lose their homes to foreclosure. That's a high price to pay for
choosing the wrong lender.

Spotting a Dishonest Lender
Be suspicious of anyone who offers you "bargain loans," whether they mail or
email you an offer, call you on the phone, or come to your door. Avoid
salespeople who promise "No Credit? No Problem." A bad loan is a costly
mistake. Beware of offers that are only "good for a very short time." Be
suspicious of anyone who contacts you first - most good mortgage lenders or
credit companies don't solicit business over the phone or just show up on
your doorstep.

Avoid lenders who call you and promise guaranteed, low-interest loans, who
take applications over the phone, or who offer next-day approval if you pay
them some money today. Say "No" to lenders who ask for up-front fees "to
cover the first payment and other expenses." Why? Because they never intend
to give you the actual loan - they just take the up-front money and run.

Finding an Honest Lender

Shop around

If you need a loan, start by asking local banks, credit unions, or mortgage
companies. Whether you borrow for home repairs, medical expenses, or to
consolidate your debt into a single monthly payment, compare the total costs
of the loan as well as interest rates. Points and fees and complicated.
Study them until you understand them.

Be cautious: A loan with a lower monthly payment is not always the better
deal; it may have a high balloon payment that is due in a few years. Call or
visit local housing counseling agencies that offer counseling on how to find
a fair loan.

Ask questions

Before borrowing money, know exactly what the lender is offering. You have a
legal right to have - in writing - the total cost of the loan, the annual
percentage rate, the monthly payments, and how long you have to pay back the
loan. Always ask questions until you understand everything. Ask the lender
to explain all fees and points. When you borrow money, it is important to
compare more than the monthly payment. Remember that credit insurance - such
as life insurance to pay off the loan if the homeowner dies - can have a
very high premium and only protects the lender, not you. Once you've
narrowed down your choices to a few lenders, check with your state attorney
general and ask if there have been complaints against the companies.

Before signing

Avoid "balloon" payments

One way that lenders make loans sound very good is to make the monthly
payment small but then require a big balloon payment at the end of the loan
period. Some loans have you wait to repay the entire loan amount until the
loan term ends. Dishonest lenders may promise to help you refinance when it
comes time to pay it off, but watch out! This promise may be just a way for
the lender to charge you higher fees and closing costs. Predatory lenders
make money by charging excessive fees every time they refinance the loan and
they'll encourage you to refinance often.
In the worst case, you can end up owing more money than the house is worth.
AARP has helped several homeowners sue fraudulent lenders when the
homeowners lost their homes (or were about to) because of many high priced
refinancings.

Consider reverse mortgages

If you are 62 or older, a reverse mortgage may be better than getting a home
equity loan. A reverse mortgage, which is based on the equity you have built
up in the house over time, gives you money that you don't have repay until
you move, sell the house, or die. You can choose to get the money as a lump
sum payment, a monthly income, or a combination of both. If you get a
reverse mortgage, you can't lose your house to foreclosure the way you could
with a home equity loan.

Since a reverse mortgage uses the equity in your home, you need to consider
your options carefully. For instance, if your home does not continue to grow
in value after you take out a reverse mortgage, you may have less of an
estate to leave your heirs.

Read everything carefully

Whenever you borrow money, don't sign anything you don't fully understand.
Always assume that any paper you sign is a contract. You can insist on
changing anything in a contract that you don't like or can't agree to. If
the lender won't change the contract to your satisfaction, get a loan
somewhere else. Some predatory lenders dramatically change the loan terms at
the last minute from what you thought you were promised. Before you sign the
loan papers, ask a lawyer or trusted friend to go over them with you. Don't
sign a document with blank spaces; all spaces should be filled in before you
sign.

After You Sign

You can change your mind

You can back out of getting a loan any time before you sign. Stop the loan
process if a new development surprises you until you get answers you need,.
If you've already signed a contract that uses your home as security, the
Truth in Lending Act allows you to change your mind, for any reason, within
three business days of signing the contract. If you change your mind, put it
in writing and mail to the lender.

Get help if you think you have an unfair loan

Contact your county office of consumer affairs or your state Attorney
General's office. You can find their numbers in the blue (government) pages
of your phone book. If you are a victim of bad loans, let others know. You
can help stop predatory lenders from victimizing someone else. Report the
fraud to the Federal Trade Commission.

AARP Resources

Reverse Mortgages
AARP offers extensive information on tapping into the equity in your home
for funds. Click on Loan Calculation under the Tools section on the upper
right top of page to figure out finances.
AARP in Court
Read how AARP helped a West Virginia woman fight a predatory lender.
$60 Million Settlement with First Alliance Mortgage Company
The settlement, awaiting approval by a federal court, is expected to return
$2,500 to $3,300 each to 18,000 First Alliance borrowers in 18 states and
the District of Columbia.

Additional Resources
Federal Trade Commission
Federal Trade Commission cautions homeowners to be on the lookout for home
equity scams.
Community Reinvestment Association of North Carolina
The Community Reinvestment Association of North Carolina has an online
handbook that uses a true story of how a homeowner borrowed money to make
some home improvements and ended up a victim of predatory lending. This site
also shows you what to look for in a loan document.
National Consumer Law Center
National Consumer Law Center has detailed information on how to spot home
loan scams.