Who’s a Predatory Lender?

photo by Taber Andrew Bain

US News & World Report quoted me in 5 Clues That You’re Dealing with a Predatory Lender.  It opens,

Consumers are often told to stay away from predatory lenders, but the problem with that advice is a predatory lender doesn’t advertise itself as such.

Fortunately, if you’re on guard, you should be able to spot the signs that will let you know a loan is bad news. If you’re afraid you’re about to sign your life away on a dotted line, watch for these clues first.

You’re being offered credit, even though your credit score and history are terrible. This is probably the biggest red flag there is, according to John Breyault, the vice president for public policy, telecommunications and fraud at the National Consumers League, a private nonprofit advocacy group in the District of Columbia.

“A lender is in business because they think they’re going to get paid back,” Breyault says. “So if they aren’t checking to see if you have the ability to pay them back, by doing a credit check, then they’re planning on getting their bank through a different way, like offering a high fee for the loan and setting it up in a way that locks you into a cycle of debt that is very difficult to get out of.”

But, of course, as big of a clue as this is to stay away, it can be hard to listen to your inner voice of reason. After all, if nowhere else will give you a loan, you may decide to work with the predatory lender anyway. That’s why many industry experts feel that even if a bad loan is transparent about how bad it is, it probably shouldn’t exist. After all, only consumers who are desperate for cash are likely to take a gamble that they can pay back a loan with 200 percent interest – and get through it unscathed.

Your loan has an insanely high interest rate. Most states have usury laws preventing interest rates from going into that 200 APR territory, but the laws are generally weak, industry experts say, and lenders get around them all the time. So you can’t assume an interest rate that seems really high is considered normal or even within the parameters of the law. After all, attorney generals successfully sue payday loan services and other lending companies fairly frequently. For instance, in January of this year, it was announced that after the District of Columbia attorney general sued the lending company CashCall, they settled for millions of dollars. According to media reports, CashCall was accused of offering loans with interest rates around 300 percent annually.

The lender is making promises that seem too good to be true. If you’re asking questions and getting answers that are making you sigh with relief, that could be a problem.

Nobody’s suggesting you be a cynic and assume everybody’s out to get you, but you should scrutinize your paperwork, says David Reiss, a professor of law at Brooklyn Law School in New York.

“Often predators will make all sorts of oral promises, but when it comes time to sign on the dotted line, their documents don’t match the promises,” Reiss says.

And if they aren’t in sync, assume the documentation is correct. Do not go with what the lender told you.

“Courts will, in all likelihood, hold you to the promises you made in the signed documents, and your testimony about oral promises probably won’t hold that much water,” Reiss says. ” Read what you are signing and make sure it matches up with your understanding of the transaction.”

Buck-A-Home

abandoned house

The Saint Louis Post-Dispatch quoted me (from an AP story) in Kansas City Presses To Sell Eyesore, Vacant Homes for A Buck. It reads, in part,

Drawn to the idea of buying a house for just a buck, Dorian Blydenburgh paced through the century-old digs in south Kansas City and didn’t mind tree limbs on the living room floor, holes in the ceiling and a funky mold smell.

“This is one everyone is gonna want, and there’s gonna be a fight for this,” said Blydenburgh, 56, a contractor looking at the three-bedroom, 1,500-square-foot house at 4124 Chestnut Avenue as a makeover prospect for a friend, who later applied to buy it. “Some of these places you need a bulldozer to fix, but this is doable. For a dollar, it looks like a go.”

That’s what Kansas City, Mo., officials were hoping to hear. The city and the Land Bank of Kansas City have offered 130 derelict, generally unlivable structures for sale for $1 each to those willing to make them livable again within a year. The buyer’s reward is an eventual $8,500 rebate — the amount it would have cost the city to flatten the houses.

*     *     *

But it’s buyer beware. Applicants must undergo a background check — applicants who are registered sex offenders or have drug-dealing or prostitution convictions are disqualified — and prove through bank statements or unused credit card limits they have at least $8,500 to devote to the rehab.

Ultimately, the program’s backers warn, rehabbing the properties might cost tens of thousands of dollars, perhaps involving installing or repairing roofs, electrical systems, plumbing, heating and air conditioning or foundations. And that’s beyond the cost of tackling troubling unknowns such as lead or asbestos.

“Most of those buildings on the dangerous list are going to have to come down. We know that,” Mayor Sly James said. “But there are other homes on that low level that could be salvaged, and we want people to know they are out there.”

Other cities have tried similar approaches. In Detroit, with the help of tens of millions of dollars from taxpayers, the city has torn down about 7,100 of an estimated 30,000 to 40,000 vacant houses since May 2014, with the mayor planning to have an additional 15,000 homes gone by 2018. More than 1,300 other homes have been auctioned, Detroit Land Bank Authority spokesman Craig Fahle said. Buyers of those properties, many fetching just the opening bid of $1,000, are required to bring the house up to code and have it occupied within six months — nine months if it’s in a historic district.

Chicago and Milwaukee have are unloading vacant lots. Chicago has sold more than 400 vacant parcels since 2014. In Milwaukee, homeowners next to a vacant lot can buy it for $1.

David Reiss, a Brooklyn Law School professor who focuses on real estate issues and community development, urges would-be buyers to understand the expenses beyond the price tag, including property taxes, upkeep and liability insurance.

“A house for a dollar may be an albatross around your neck,” he said. “I would look at it case by case. If it sounds too good, it probably is.”

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