Homeowners who have been blatantly taken advantage of during the mortgage process may have a defense to foreclosure based on the unconscionable contract. There are a number of factors that can point to unconscionability in a loan, and homeowners should do their research or hire a qualified attorney to help them, but the following list of five signs to watch out for may be a starting point for borrowers.
One clear sign a loan may be unconscionable is if the borrowers have a limited awareness or understanding of the language the contract is written in, and was unable to read the documents well. This gives lenders an opportunity to include terms and conditions in the loan that unfairly burden the homeowners. Mortgage companies have an obligation to make sure the borrowers understand enough of the language in order to sign the contract and know what it means.
Lenders that knew (or should have known) that the borrowers taking out loans could not afford to pay them back may be guilty of entering into an unconscionable contract. Many subprime loans were made using the unfounded assumption that homeowners would magically double their incomes in the space of a year. Other mortgages were made where the monthly payment was just a few dollars less than the total amount of income the borrowers received each month.
Another sign of unconscionability may be in cases where the borrowers are not represented at the closing of the mortgage transaction by an attorney, but the lenders have one that rushes the process. Combined with other factors, such as the ones listed in this article, there may be an indication of the lender attempting to rush the closing process and intimidate the homeowners.
If terms are changed in the mortgage at the last minute, and these changes negatively impact the borrowers, the loan may be unconscionable. While most loans change many times from the qualification stage to closing, last minute changes that increase the cost of credit or place large burdens on the homeowners may indicate unconscioinability. For instance, requiring one year of interest to be paid in advance and not disclosing this condition until closing may be a sign.
Finally, if homeowners apply for a loan and receive few, if any, benefits from the transaction, it may be unconscionable. For instance, if borrowers refinance and receive a higher monthly payment but no cash out or consolidation or any other benefit, the transaction is obviously unfair. But lenders may be able to get away with this by making large promises and then eating up any funds through fees, processing charges, and other administrative costs.
The main sign of an unconscionable contract is that it contains terms that are unfair to one party. For many mortgages given to people who had no ability to pay back the loans or were based on fraudulent appraisals or forged income documents, this may be a huge issue. As well, homeowners may be able to bring this issue into court when defending a foreclosure or attempting to stop a trustee sale.