Predatory lending is a term used to describe a range of abusive and aggressive lending practices that often target the elderly and people with limited income or in deep debt. But even institutional lenders with respectable reputations in the banking industry can be guilty of lending abuses with their victims being sophisticated borrowers. Although the most recent manifestation of predatory lending is the subprime lending crisis that began in late 2006, it’s been around for decades.
Luckily, victims of predatory lenders have weapons to fight back against their predators, including bringing suit based on contract, negligence, civil or criminal fraud, or strict liability theories, in addition to statutory protections directed specifically at predatory lending. There are almost as many different legal theories as there are fact patterns and casts of characters within the predatory lending context.
Remedies for predatory lending can include damages, rescission of the loan, and in some situations statutory attorney fees. For example, if the borrower is an elderly or dependent adult and the loan was made as a result of “fiduciary abuse” (see Welf & I C §15610.30), the borrower is entitled to a prejudgment writ of attachment and to recover attorney fees, litigation costs, and fees for the services of a conservator ad litem, in addition to all other available remedies. Punitive damages are also available, if the borrower can show by clear and convincing evidence that the lender is guilty of recklessness, oppression, fraud, or malice. See Welf & I C §§15657-15657.5.
To avoid becoming a victim of predatory lenders in the first place, consider the following tips from Lawyers.com:
- Before borrowing money, particularly if your house is used for collateral, read all terms and conditions of the loan carefully and honestly evaluate your ability to repay the loan.
- Do not go through with a lending transaction if you can’t afford the repayment plan, i.e., if the number of “points” (up-front interest) is high or the terms are changed at the last minute.
- If you have entered into a predatory loan agreement, act quickly to reduce the risk of harm. You may have the right to rescind the loan if you act within 3 days of signing the agreement. Otherwise, you may need to take additional steps to manage your finances and protect your home against foreclosure.
For everything you need to avoid or combat predatory lenders, check out CEB’s California Mortgages, Deeds of Trust, and Foreclosure Litigation, chaps 8, 12 (4th ed Cal CEB 2009) and California Real Property Remedies and Damages §§1.8A-1.8B (2d ed Cal CEB 2002). On protecting elderly victims, see California Elder Law Litigation: An Advocate’s Guide, chap 6 (Cal CEB 2003).
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