While federal and state predatory lending laws are enacted to reduce fraudulent or unfair lending practices to protect people, they may also provide some means for fighting predatory foreclosure practices. Event though the federal predatory lending law, Home Ownership and Equity Protection Act (HOEPA), has been put into effect since 1994, most states have also passed their own legislation using HOEPA as their legal framework.
Foreclosures, in certain circumstances, may be open to services that can rescue a person from financial debt. When all other financial options are strained or exhausted, the act of a foreclosure may rescue any sorts of fees associated, moderate or transaction, and full disclosures can be executed. Even though an eviction from the premises ultimately occurs, the person is not liable for the fees.
Subprime loans often target individuals who are ill-informed or inept at managing finances. Consequently, they can fall prey to lending scams dubbed equity stripping. This tactic tends to be associated with the transactions of large banks or national companies rather than local agents and investors. These loans are high-cost and risky refinancing loans, which can jeopardize the financial well-being of the borrowers.
A person faces a desperate situation when his or her property has been foreclosed on, which results in a loss of their entire equity, or investment, in the property. As a way to save people facing such a dire situation, foreclosure rescuers offer the hope of redemption, a new mortgage to start again. For a fee the property can be repurchased from the rescuer after a given amount of time. The homeowner can also remain in the house as a tenant for a fee or a portion of the equity as they act to increase their income and repair their credit. The agreement can either be written or orally disclosed in terms of what the former homeowner can afford as fees. This is usually to protect family members and friends in the loss of a home. It is essentially like lending credit to a foreclosed homeowner while paying off the mortgage and temporary holding the house until it is returned to the owner.
For example, when a Category Five hurricane came ashore at Miami Gardens, Florida, many homes and apartment complexes were destroyed. Approximately 4,000 of its 22,000 units were in foreclosure. Congress passed a housing relief bill that could help the 400,000 homeowners in the process of losing their homes via housing refinancing aid. President G.W. Bush objected to refinancing the trust fund as well as addressing the four billion dollars set aside to help local governments buy and fix foreclosed homes. This tactic is a way to keep the houses maintained and ready for purchase or repurchase for what is hoped to be a recovering market.
The process of triage may require local officials to determine which people are in the most need for a rescue. One group would be best able to use the aid for long-term, creditworthy deals. People victimized by shady lenders would be compared to those who made misguided financial decisions as well as those financially unable to cover the expenses of a house. Several states have passed laws to prevent equity stripping schemes. The law requires adequate disclosures of various policies and capped fees to protect the consumer. They also ban unfair practices involved in equity stripping. California regulates “foreclosure consultants,” protection against unfair and deceptive practices.