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Nolan Elder Law and Estate Planning, LLC Blog

Monday, August 14, 2017

Protecting Your Parents From Predatory Housing Schemes

Elder financial abuse is a growing problem. Predatory housing schemes are a common form of financial exploitation against older Americans. One of the best steps you can take in protecting your parents from predatory housing schemes is to work in partnership with their bank or credit union. The State of Alabama, State Banking Department (SBD) is pushing hard to protect seniors in Alabama from financial abuse. The SBD works to educate the elderly in Alabama about how to avoid being the victims of exploitation, as does your local elder law lawyer.

How predatory housing schemes work

Many aging Americans have most of their money tied up in their house equity. When they have significant medical bills or the house needs a big repair, seniors may be tempted to get a loan against the equity in their homes to pay off the crushing debt. They may feel there is no other way to get out from under the debt pressure on a fixed retirement income.

Predatory housing schemes are loans that leave the senior in worse shape financially than before the loan. This result happens because these loans tend to have excessive fees hidden in the fine print, and high payments the homeowner cannot reasonably make on his income. There is often a large balloon payment at the end of the loan.

When the homeowner cannot keep up with the payments, the predatory lender swoops in and forecloses on the home. After the lender pays the exorbitant fees and the loan amount from the sales proceeds, the homeowner is left with little if any equity to purchase another home.

Alabama has a miserable track record when it comes to predatory lending. The Southern Poverty Law Center (SPLC) reports that some companies in Alabama charge 456% interest for payday loans and 300% interest for title loans. The SPLC laments that “Alabama is a paradise for predatory lenders.”

Home mortgage abuse is also rampant in Alabama. In 2016, banking giant HSBC paid $470 million to Alabama and US authorities to settle charges of mortgage improprieties of abusive origination, servicing, and foreclosure of mortgages in Alabama. While HSC has been ordered to change its ways, it is only one of many financial institutions that lend to seniors in Alabama.

How to explore whether an offer of financing is predatory

In Alabama, there are several ways to investigate whether a loan offer is predatory. One way is to take all the loan offer paperwork to your parents’ local bank or credit union where they have accounts and ask a loan officer to go over the documents with you before signing. Since they are competitors, they will have the incentive to point out anything that is excessive or predatory.

The State Banking Department in Alabama has been raising awareness of the financial exploitation of seniors. The SBD has been educating banks and credit unions across the state, as well as the general public, so this issue will be on the radar of your parents’ local bank or credit union.

You can also contact these agencies and organizations to see if there have been complaints against the company or mortgage lender who wants to lend money to your parents:

  • Alabama State Banking Department, toll-free phone: (866) 465-2279
  • Consumer Financial Protection Bureau, (855) 411-2372; (855) 729-2372 for TTY/TDD
  • Your local Better Business Bureau
  • Your local District Attorney. Find your Alabama District Attorneys by county. 

Talk with a local Alabama elder law attorney to develop strategies to best protect your parents from predatory housing schemes.

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