Friday, May 23, 2008

predatory lending - definitions - N.J. case

Nowosleska v. Steele, et al. - N.J. Superior Court, Appellate Division - May 19, 2008

Borrowers moved to open a default judgment entered against them in a case in which they "were induced to pay with the title to property valued at $405,000 in order to pay off debts totaling $145,000." The various transactions included a $50,000 fee to one of the lenders.

In its opinion opening the default judgment based on possible "grave injustice" and "equity and justice" under N.J. law, the court mentioned several definitions of "predatory lending," as follows:

While predatory lending is a general concept not subject to precise definition, one authority has described it as: a mismatch between the needs and capacity of the borrower . . . In essence, the loan does not fit the borrower, either because the borrower's underlying needs for the loan are not being met or the terms of the loan are so disadvantageous to that particular borrower that there is little likelihood that the borrower has the capability to repay the loan. Assocs. Home Equity Servs. , Inc. v. Troup, 343 N.J. Super. 254, 267 (App. Div. 2001) (quoting Daniel S. Ehrenberg, If the Loan Don't Fit, Don't Take It: Applying the Suitability Doctrine to the Mortgage Industry to Eliminate Predatory Lending, 10 J. Affordable Housing & Community Dev. L. 117, 119-20 (Winter 2001)).

HUD Treasury Task Force on Predatory Lending, Curbing Predatory Home Mortgage Lending 17-24 (2000) discusses predatory lending in general and the difficulty in providing a definition of predatory lending. Predatory lending includes "the practice of making loans containing interest rates, fees or closing costs that are higher than they should be in light of the borrower's credit and net income, or containing other exploitative terms that the borrower does not comprehend." Henry v. Lehman Commercial Paper, Inc. 471 F.3d 977, 984 (9th Cir. 2006); see also Debra Pogrund Stark, Unmasking the Predatory Loan in Sheep's Clothing: A Legislative Proposal, 21 Harv. BlackLetter L.J. 129, 134 (2005) (stating that "predatory lending is the situation where a mortgage broker or mortgage lender engages in fraudulent, deceptive or sharp practices to induce borrowers (often the elderly or minorities) to enter into 'bad' loans," which would include loans that are overpriced, loans where there is no net economic benefit to the borrower, loans where the borrower cannot afford the payment so the lender is relying on the borrower's equity for payment, and loans with other exploitative terms not understood by the borrower).