Buying a home is stressful enough, but some financial institutions and other organizations linked to home buying fees are accused of predatory lending practices. Among the alleged practices are charging excessive mortgage fees and closing fees, violating the Truth in Lending Act, abusing force placed insurance, illegally foreclosing on homes, and discriminatory lending practices
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Charging Excessive Fees
There are many fees associated with purchasing a home. These include title searches, title insurance, home inspections, and closing fees. Some of these fees are legitimate; however, companies may charge excessive amounts for activities associated with these fees. For example, a company may charge a borrower courier fees but bill more than the courier company charges them. Furthermore, companies may charge for the same services twice. They may bill once for paperwork under "paperwork processing," and a second time under a different paperwork heading. In reality, the consumer is being charged two times for one service.
The Truth in Lending Act (TILA) was created to protect consumers from lending fraud by requiring lenders to provide clear and accurate information regarding the terms and costs associated with a loan. Failure to do so—either by misrepresenting the fees or loan structure or by omitting important information—may result in the borrower terminating the loan and recovering all interest and fees returned to them.
In 2015, Wells Fargo agreed to settle a lawsuit concerning property inspection fees that were charged to borrowers who fell behind on their mortgage payments by 45 days or more. These inspections were ordered every 25 to 35 days until the borrower managed to get the mortgage payments up to date. Plaintiffs alleged the inspections were unnecessary and the true nature of the fees was hidden.
Predatory Mortgage Lending
Predatory mortgage lending activities put the homeowner at risk of foreclosure. Such activities include charging unauthorized fees, charging hidden fees at closing, refinancing loans when there is no benefit to the borrower, approving or offering a loan when the borrower does not have the means to repay it, offering excessively high interest rates, and failing to properly disclose figures or legally required documentation at the closing table.
Mortgage fraud is the intentional misstatement, misrepresentation or omission of information by an applicant or other parties when providing information while applying for a mortgage or insurance for a mortgage loan. Mortgage fraud for property occurs when the applicant falsifies information solely to purchase a property for primary residence.
It is illegal for a person or organization to encourage a mortgage applicant to lie on the application to secure a mortgage.
Under the Equal Credit Opportunity Act (ECOA), it is illegal for lenders to commit credit discrimination on the basis of race, color, national original, sex, marital status, age, religion or whether the borrower receives public assistance. Although it is legal for the creditor to ask for this information in some situations, creditors cannot use that information to prevent a person from obtaining credit. Furthermore, creditors are never allowed to ask borrowers about their religion. The ECOA applies to anyone who participates in the decision to grant credit or in setting the terms of credit, including real estate brokers who arrange financing.
It is illegal for lenders to commit mortgage discrimination. Under the Fair Housing Act (FHA), it is illegal to discriminate in any aspect of residential real-estate transactions. This includes approving loans to buy, build or repair a dwelling; selling, brokering or appraising residential real estate; or selling or renting a dwelling.
Discriminatory practices include discouraging a person from applying for a mortgage, rejecting a mortgage application, imposing higher interest rates on a loan or requiring a larger down payment for discriminatory reasons such as age or race.
Mortgage Servicing Fraud
Mortgage servicing fraud is different from predatory lending because it occurs after a loan has closed. Mortgage servicers are most often third parties that are hired by the lender to perform the daily duties associated with collecting loan payments. Servicing fraud activities include making a loan appear to be in default even though the borrower has paid on time, not accepting proper loan payments, charging fees for collection letters and inspections, charging more interest than is owed and putting payments in suspense accounts with no cause. In some cases, the mortgage servicer is allowed to keep any fees associated with late payments, giving the servicer an incentive to make payments appear late.
Force-placed insurance is put in place to allow lenders to protect their interests in a property they have a mortgage on. In cases where the homeowner's insurance policy has lapsed, force-placed insurance protects the lender in case of fire or other catastrophe that affects the property. But homeowners allege because force-placed insurance is placed by the lender, the costs are generally unreasonably high, given the insurance actually provides less coverage than commercially available insurance.
Further, they say they've had the insurance force-placed even when they have an up-to-date insurance policy. Finally, some argue that when they provide proof of a new policy, the force-placed policy is not removed quickly enough. Some financial companies face allegations they received kickbacks for using force-placed insurance from certain companies and customers wound up paying for those bonuses.
In January 2016, PNC Bank NA agreed to pay $32.3 million to settle a lawsuit in Florida alleging the company overcharged consumers for force-placed insurance. Bank of America NA and HSBC Bank USA NA have also agreed to settle lawsuits linked to force-placed insurance.
Many people who fall victim to unethical mortgage and predatory lending practices find themselves facing foreclosure on their home, sometimes through no fault of their own. In some cases, victims uphold their end of an agreement only to have the banks deny them modifications to their mortgages, issue delinquency reports to credit ratings agencies and foreclose on their homes.
In September 2016, a lawsuit was filed against Nationstar Mortgage, a mortgage-servicing company, alleging the company refused the payments of a homeowner, then charged thousands of dollars in fees for property inspections and disbursement insurance. According to reports, the lawsuit alleges negligence, fraud, and breach of contract.
Mortgage Fee Legal Help
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