Predatory Lending: Recognizing It and Using It as a Foreclosure Defense

Predatory lending strips equity, traps borrowers in unaffordable loans, and disproportionately targets minority and elderly homeowners. Recognizing the signs of predatory lending and understanding your legal remedies is critical — these claims can form the foundation of a strong foreclosure defense and provide grounds for damages, rescission, and attorney's fees.

The hallmarks of predatory lending include: steering borrowers into high-cost subprime loans when they qualified for prime loans, excessive fees and points not justified by the borrower's credit profile, loan flipping (repeated refinancing within a short period with no net benefit to the borrower), balloon payments on loans the borrower cannot afford, negative amortization features that cause the loan balance to grow, prepayment penalties that trap borrowers in high-rate loans, and lending based on the property's value rather than the borrower's ability to repay.