By David Phelps

Beware of predatory mortgage lenders…small landowners are being bullied by mid-size banks, like Luther Burbank Savings, which has a Westside branch in Beverly Hills, with reported assets of $7.9 Billion, by assessing unlawful penalties and employing tactics intended to confuse and take advantage of vulnerable borrowers. Compounding matters, LBS is being acquired by Washington Federal, Inc. (Nasdaq: WAFD), and its almost $21 Billion in assets according to recent reports.

The scheme includes charging default interest charges contained in loan agreements, which violate California law, or have been found to be unlawful penalties by California’s First District Court of Appeal. These predatory lenders take advantage of some borrowers’ naivete and inability to pay the outrageous default interest charges (e.g. an additional 9.99 percent per annum interest charge assessed against the total unpaid principal loan balance), forcing either collection of money not owed under California law or to foreclose. Stated another way, hard money lenders like FJM Private Mortgage Fund, and seemingly reputable lenders like Luther Burbank Savings are seeking to collect unlawful penalties based on threats of foreclosure which would never be successful if only, the unsuspecting borrowers knew the law or how to fight back against this type of unfair business practice.

“These banks target elders — in this case my grandfather – in hopes of securing new loan terms that heavily favor the lender. They know the borrower’s age and health may be in question. When the Pandemic took my Grandfather, the Bank put profits before people’s livelihood. Like a schoolyard bully, the Bank has continued to torment a grieving family in the midst of rebuilding, instead of working on a sensible solution, says Ali Nowaid, a Los Angeles resident.”

Often, these lenders record a Notice of Default which includes outrageously high penalties that prevent borrowers from refinancing their existing loans to save their equity, if not their property. These bullying tactics use the legal system as a tool to unjustly collect tens or hundreds of thousands of dollars, or to foreclose on the property of the lender’s own customer under the guise of equity, citing an unenforceable term agreed to by the borrower. This practice cannot be allowed to continue, and borrowers impacted by such predatory lenders (large and small) should know they have tools at their disposal to fight back against such practices, hold these lenders accountable, and save their properties, if necessary.

If you suspect you have been a victim of such a practice, please contact the Consumer Financial Protection Bureau (CFPB) to submit a complaint. The CFPB may have advice on what to do if you are the victim of these types of loans, and how you might be able to avoid such unfair business practices. The CFPB can be reached by phone Monday through Friday at 855-411-2372.

The California Dept. of Financial Protection and Innovation is also a great state resource for consumers who find themselves similarly victimized by unlawful, unenforceable, or inappropriate lending practices, and may be helpful to those who might need to take legal action to stop such violations and recover their losses. The Federal Deposit Insurance Corporation (FDIC) also has tips on how mortgage borrowers can protect themselves.

This accountability relies on all of us speaking out to protect our fellow consumers, borrowers, and investors. Only then can we stop the unfair business practices of these bad-faith lenders and hold them to account for victimizing their own clientele.

David Phelps is Principal, Phelps Public Affairs

Photo by Nattakorn Maneerat