12 Sep Bankruptcy and Deceptive Lending Practices
Exploding ARMs, option ARMs, and other exotic mortgage products have been much in the news lately. The FTC is investigating deceptive disclosure practices concerning some such mortgages. Proposals have been made in Congress which are intended to help bail out some of those who have gotten in over their heads with such mortgages, and some who, frankly, have been victimized. There are always those who say that the borrower should have known better. But the lender has absolute responsibility to disclose the terms of the loan, and the reality is that those disclosures are not always made, and the borrower does not always know.
While I have (and still do) advocate reading documents before signing them (and even refusing to sign until you do, I have seen some mortgages in my practice that I could not understand, and I have a law degree and more years at the bar than I care to admit. I recently reviewed a mortgage for a client which appeared to have the potential of continuing into infinity. There was no cap on the adjustable rate, and the mortgage payments were to re-amortize every five years. I am still not sure that is what was intended, and I don’t believe that the disclosures contained in that mortgage were adequate. If fact, how could you adequately disclose the potential cost of a mortgage that may never end? I am certain that the borrower in that situation did not understand the terms of the mortgage. And, ironically, the lender in that case was a national bank, not a sub-prime lender, so theoretically the borrower could have qualified for a conventional loan.
If you have gotten behind on mortgage payments, a Chapter 13 bankruptcy may help you catch up. If you have also been victimized by deceptive or predatory lending practices, those violations can also be raised in connection with a Chapter 13 case, but there are some potential pitfalls. If there are such issues to be dealt with in a Chapter 13 case, you need an attorney who is experienced in dealing with such matters from the outset. The way such debts are listed, and the disclosure of such claims as potential assets in your case must be done correctly, or your ability to remedy the situation may be affected. Many bankruptcy lawyers will review your mortgage as a matter of course in preparing for a bankruptcy filing, but if you believe that you have been victimized, discuss those matters with your bankruptcy attorney.
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