Housing and Community Development Department

Fair Housing - Avoiding Real Estate Scams - Predatory Lending

Predatory LendingReverse MortgagesTipoffs to Ripoffs

What is Predatory Lending?
In communities across America, people are losing their homes and their investments because of predatory lenders, appraisers, mortgage brokers and home improvement contractors who do the following:

  • Sell properties for much more than they are worth using false appraisals.
  • Encourage borrowers to lie about their income, expenses or cash available for downpayments in order to get a loan.
  • Knowingly lend more money than a borrower can afford to repay.
  • Charge high interest rates to borrowers based on their race or national origin and not their credit history.
  • Charge fees for unnecessary or nonexistent products and services.
  • Pressure borrowers to accept higher-risk loans such as balloon loans, interest-only payments and steep pre-payment penalties.
  • Target vulnerable borrowers for cash-out refinance offers when they know borrowers are in need of cash due to medical, unemployment or debt problems.
  • "Strip" homeowners' equity from their homes by convincing them to refinance again and again when there is no benefit to the borrower.
  • Use high-pressure sales tactics to sell home improvements and then finance them at high interest rates.
What Tactics Do Predators Use?
  • A lender or investor tells you that they are your only chance of getting a loan or owning your own home. You should be able to take your time to shop around and compare prices and houses.
  • The house you are trying to buy costs a lot more than other homes in the neighborhood but isn't any bigger or better.
  • You are asked to sign a sales contract or loan document that are blank or contain information that is not true.
  • You are told that the Federal Housing Administration insurance protects you against property defects or loan fraud - it does not.
  • The costs or loan terms at closing change and are not what you agreed to.
  • You are told that refinancing can solve your credit or money problems.
  • You are told that you can only get a good deal on a home improvement loan if you finance it with a particular lender

Always remember, if you are presented with a deal to buy, repair or refinance your home which sounds too good to be true, it usually is!

11 Tips on Being a Smart Consumer

  • Before you buy a home, attend a homeownership education course offered by a U.S. Department of Housing and Urban Development (HUD)-approved, nonprofit counseling agency.
  • Interview several real estate professionals (agents), and ask for and check references before you select one to help you buy or sell a home.
  • Get information about the prices of other homes in the neighborhood. Don't be fooled into paying too much.
  • Hire a properly qualified and licensed home inspector to carefully inspect the property before you are obligated to buy. Determine who is going to be responsible for repairs, you or the seller. If you have to pay for the repairs, make sure you can afford them. If and when possible, have a qualified real estate professional write into the purchase agreement contract what repairs the seller is willing to pay for before you sign.
  • Shop for a lender and compare closing costs and fees. Always be suspicious if anyone tries to steer you to one lender.
  • Do NOT let anyone persuade you to make a false statement on your loan application for example: overstating your income, the source of downpayment monies, failing to disclose the nature and the amount of your debts, or even how long you have been employed. When you apply for a mortgage loan, every piece of information that you submit must be accurate and complete. Lying on a mortgage loan is fraud and may result in criminal penalties.
  • NEVER let anyone convince you to borrow more money than you know you can afford to repay. If you get behind on your payments, you risk losing your house and all the money you put into your property.
  • NEVER sign a blank document or a document containing blanks. If someone inserts information else after you have signed, you may still be bound to the terms of the contract. Write "N/A" (i.e., not applicable) or cross through any blanks to protect yourself.
  • READ everything carefully and ASK questions. Never sign anything you do not understand. Before signing, have your contract or loan agreement reviewed by an attorney skilled in real estate law; consult with a trusted real estate professional or ask for help from a housing counselor with a HUD-approved agency. If you cannot afford an attorney, take your loan documents to a HUD-approved agency near you. Find out if they will review the documents or can refer you to an attorney who can help you for a lower cost.
  • Be suspicious when the cost of a home improvement goes up if you do not accept the contractor's financing.
  • Be honest about your intention to occupy the house. Stating that you plan to live there when, in fact you are not (because you intend to rent out the house or fix it up to resell it) this violates federal law is a crime with penalties.

Housing counselors with a HUD-approved agency can help you be a smart consumer. To find a counselor near you, call 1.800.569.4287 or go to HUD's website at www.hud.gov.