Primary marketPredatory Lenders Have One Goal: To Snag Your Home - Don"t Get Caught in Their Scheme
The term predatory lender just about says it all. These dishonest lenders literally hunt down their victims (homeowners) with one goal in mind: to take their home. Knowing how to avoid these unscrupulous lenders may keep you from losing your home.
Predatory lenders make a loan that the borrower cannot afford to repay. They frequently prey on seniors and those homeowners who are in financial need for such things as repayment of property taxes, medical bills or home improvements.
“The fast talkers can trick a homeowner into taking out loans they can"t afford to pay back and when they can"t make the payment then their homes are at risk of foreclosure,” said Laurence Weinstein, a senior and a consultant for AARP who handles the affordable and accessible housing nationally for the organization.
Seniors are typically targeted because they are the largest population that owns their home outright. They will sometimes be persuaded to take out a loan that is bad for them.
“While they may have high equity in their home they are on limited income and so sometimes when they take out a large loan on their home they actually don"t have the money to repay it on a monthly basis and end up forfeiting on that loan,” says Maxine Fischer, Associate State Director for AARP.
However, seniors certainly aren"t the only ones who can get swindled by these smooth-talking salespersons.
There are many schemes that predatory lenders use. One of the more common techniques is to create a dire need.
“Many unscrupulous contractors… partner with unscrupulous predatory lenders. The contractor goes into the house and tells the homeowner, usually an elderly person, that they need an enormous amount of work and that they have a lender that will be able to help them. The predatory lender will offer a contract that has enormous pitfalls…. The rates are very high and what they"re basically shooting for is to repossess the home, to get the home itself,” Weinstein said.
Another tactic is when a homeowner attempts to borrow money. Predatory lenders will make certain the loan is secured with their home without fully explaining the risk if the loan can"t be repaid. Generally these dishonest lenders will offer a lower interest rate, but hidden fees are usually also part of the loan.
“It"s true that loans secured by a home can be available at lower interest rates than unsecured loans like credit cards. However, some lenders take advantage of seniors by charging higher sub-prime rates on homes and charging a lot of extra kinds of fees that bump up the amount that a senior would have to pay for the loan,” says Fischer.
“Even though the interest rate might be lower, what they have to lose is a lot more,” warns Fischer.
To avoid predatory lenders you have to do your homework before you take out a loan:
You pick the lender rather than the lender picking you
Ask for references for lenders
Know credit scores to find out if you should be charged a sub-prime rate
Get several bids for contractor work
Get contractor license number
Do not rely upon lender recommended by contractor
Don"t be fooled by loan offers you get in the mail or on TV, often the ad doesn"t tell the whole story
Be cautious when using a home equity loan, however, your home can be at risk if you can"t repay loan
Pay very close attention to the fees, sometimes the lowest monthly
Banks, Savings & Loans and Credit Unions may be safer because they"re more closely regulated
Don"t just look at the interest rate, also look at the monthly payment when comparing loans
Predatory lenders are sharks, do your homework so that you don"t become the bait!