Perhaps one of the most frequently regretted decisions is the consumer's decision to refinance a low interest loan secured by a mortgage on their home or to borrow money secured by a second mortgage in order to pay unsecured creditors (typically, credit card debts). Many debtors obtain home equity loans or predatory financing which they can barely, if at all, afford to pay. These debtors frequently use the loan proceeds to pay off unsecured creditors. By deferring Bankruptcy and allowing the lender to obtain a mortgage against their homestead, these debtors have wasted their most valuable retirement asset (their opportunity to accumulate substantial equity in their home). Unfortunately, the increased "home" payments often cause these debtors to file Bankruptcy, but they are worse off than they would have been if they had filed Bankruptcy rather than obtain a second "mortgage." Although this may appear to be the "responsible" thing to do, it often destroys families financially and, too often, makes the situation worse. After additional "mortgage" payments begin, the debtors often become financially "squeezed" and resume using credit cards to pay household expenses or pay their other debts until they become unable to pay their new credit card balances which arose from the financial squeeze of paying the second mortgage. Many of these debtors lose their homes despite Bankruptcy protection because they are unable to continue to pay their first and second mortgages despite paying off many of their other debts. This is one of the "dirty secrets" of the finance companies and mortgage brokers that prey upon the vulnerable. The debtors who file Bankruptcy when they become unable to meet their debts usually continue to own their home and their creditors are rarely able to claim the equity in the debtor's homes. The debtors who borrow against the equity in their home frequently lose their home because they are unable to pay their new mortgage obligations on time. Even the homeowners who can make their mortgage payments have substantially impaired their financial future. Many homeowners believe that "their" mortgage broker is working on their behalf and remain naively unaware of the corrupting incentives that many mortgage brokers operate under. Many, if not most, mortgage brokers receive a kickback from the mortgage company that they place a homeowner's mortgage with. Many mortgage brokers place mortgages with the lender that provides the greatest kickback rather than the lender that offers the consumer the best rate. As a result of this abuse and other predatory practices, government investigations have reported that approximately forty-two percent (42 %) of all borrowers who are placed in subprime (i.e., high rate or "B/C") mortgages actually qualified for "A" rate (or "prime") mortgages. Wise consumers shop around rather than rely on a mortgage broker who tells them that "this is the best rate that you are eligible for." Consumer advocates recommend that homeowners obtain competitive bids for refinancings even if they believe that they have "poor" credit. Home equity loans and loans in excess of the homeowners equity are predatory! If you are considering using your home as collateral for a loan, I encourage you to set up an appointment for a free consultation to speak with me before you surrender valuable rights. After homeowners have already borrowed money secured by a second mortgage against their homes, Mr. Petersen may be able to strip the lien in bankruptcy. For more information on this subject, click here. Approximately 15% to 20% of the Chapter 13 Bankruptcies that Mr. Petersen files include a motion to strip a second mortgage. If these Bankruptcy debtors complete their Chapter 13 payment plan, their obligations to pay the second mortgage will be discharged and the mortgage will be void. Some other homeowners often have a cause of action under consumer protection laws but, unfortunately, many of them waited until the statute of limitations expired (one year after they refinanced their home) before they consulted with Mr. Petersen. Second mortgages and mortgage refinancings are often predatory and, therefore, borrowers may be able to use the lender in a "lender liability" action or contest the lender's entitlement to be paid in a Chapter 13 Bankruptcy. Many of the second mortgages are vulnerable to attack because they provide little, if any, benefits to the borrower. Examples, include: These lenders often target the most vulnerable people, the poor and the elderly. Under the Federal Home Ownership Equity Protection Act of 1994 ("HOEPA"), the federal protections against predatory home equity loans are rather limited. HOEPA allows borrowers to recover the rather limited damages available under the Truth In Lending Act. HOEPA requires lenders to disclose certain risks and prohibits lender from including certain terms (whether the lender invokes the prohibited terms or not.) Failure to comply with the disclosure obligations is often considered a "material term" for purposes of allowing the borrower to rescind (i.e., walk away) the loan or contest the lender's entitlement to receive any money as a secured creditor if the borrower files a Chapter 13 Bankruptcy! HOEPA applies to certain loans with excessive costs and fees. A loan is subject to HOEPA if it: In order to be a HOEPA loan, the loan must satisfy all four conditions ("a" through "d") HOEPA does not "cap" or regulate the interest rates or fees that even predatory lenders can charge unsuspecting consumers. HOEPA merely requires that creditors accurately and truthfully account for the expenses and interest that they charge. HOEPA provides many borrowers with powerful remedies (even a right to sue) if the predatory lender exceeded the "cost triggers" and lied about the interest rates, expenses or finance charges or failed to provide the consumer with certain disclosures. Many predatory lenders attempt to conceal improper charges, inflated expenses paid to companies that they own, control, or own an interest in, or kickbacks to mortgage brokers by misstating (or cryptically noting) these payments in the closing statement (i.e., Form HUD 1). We investigate whether these charges are bona fide through a variety of techniques. Depending upon the circumstances of the borrower's case, relief may be available if the lender understated the amount of the finance charge by at least $35.00. If the predatory lender inflated an expense by at least $35.00, the borrower may have a claim under HOEPA. Other borrowers are entitled to relief because the predatory lender misstated the amount of the finance charge by one half of one percent (0.5%) either way ---- by under or over stating the finance charge. Unfortunately, many borrowers obtain second mortgages and don't consult with an attorney until after the statute of limitations has expired. Once the statute of limitations expires, the consumer loses the right to sue or even to rescind the loan. The statute of limitations for an action for damages under HOEPA is one year. In Florida, the statute of limitations for an action to rescind based upon HOEPA is three years. WHAT HAPPENS IF A LENDER VIOLATED HOEPA? Borrowers who had "high cost loans" (i.e., loans covered by HOEPA) have valuable rights if the predatory lender lied about the cost of the loan --- but only if the borrower acts in time! If a predatory loan violates a borrower's HOEPA rights, the borrower has up to one year (365 days) to sue for damages. These damages usually exceed the amount of the loan. If a home owner discovers that the predatory loan violated HOEPA after the one year statute of limitations to sue for damages expired, the home owner may still be able to bring an action to rescind (i.e, "undo") the loan for up to three years after the loan closed. Even rescission can be a very powerful tool which can assist many families in saving their home. HOW DO I KNOW WHETHER I HAVE A PREDATORY LOAN? This website contains only the very basic information to indicate whether you may have a predatory ("HOEPA") loan. If this introductory discussion of the law seems complicated, I understand how you feel. Predatory loans are often difficult to identify because dishonest lenders are often skilled in hiding their wrongful conduct. If you have refinanced your home or obtained a home equity loan within the past year and the interest rate was at least 15% annually, Mr. Petersen recommends that you contact his office to set up an appointment well before the one year statute of limitations expires. If you refinanced your home or obtained a home equity loan through a mortgage broker within the past year, you may have rights under HOEPA or other federal home owner protection laws and should consult with an attorney. If you obtained a home refinancing or second mortgage within the past year from a consumer finance company (e.g., American General, Beneficial, Blazer, CitiFinancial, Household Finance Corporation a/k/a HFC, Kentucky Finance, Sunbelt, Transouth, or the loan units of Washington Mutual or Wells Fargo, Mr. Petersen encourages you to contact his office as soon as possible. Mr. Petersen actively represents families with predatory lending and lender liability claims and is available for consultation. Please remember to bring ALL of the documents that you received concerning the loan (for example, all of the loan documents) and mortgage servicing statements to your initial consultation.
SECOND MORTGAGES a/k/a "HOME EQUITY LOANS"
Over the past nine years, we've heard from hundreds if not thousands of debtors. No one intended to borrow money without repaying it. Each client regrets that they are compelled to file Bankruptcy. As their Bankruptcy progresses, however, many clients tell us the their biggest mistake was waiting so long to file Bankruptcy.