Subprime Mortgage Litigation

By: Timothy McFarlin | Published: June 15th, 2010 | Category: Mortgage Litigation

A subprime mortgage is one that is issued to borrowers with less than perfect credit that presents more risk to the lender.  The increased risk allows lenders to charge increased interest rates.  Many subprime mortgages were issued with an adjustable interest rate, meaning that after a pre-determined amount of time, the interest rate adjusted to a floating interest rate, or quite simply, an interest rate that was subject to change from month to month.  Homeowners with adjustable rate subprime mortgages are often prime candidates for foreclosure because subprime mortgages are usually issued to low income families.  When the interest rate adjusts, but the income of the low income family remains the same, the borrower becomes unable to make their monthly mortgage payments, and therefore eventually falls into foreclosure.

Part of the cause for the decline in the housing market revolved around the issuance of subprime mortgages to borrowers that were more than likely to default, based on their credit history and reported income.  Lenders took a gamble when they issued so many subprime loans, and when the mortgages went bust, the rest of the housing and lending community was left to suffer.  After the mortgage bubble burst, it was discovered that various predatory and illegal lending practices were used to issue a majority of subprime loans that fell into default.  This means that lenders were irresponsible in their decisions to approve loans that they knew would most likely fail.

Individuals who are holders of subprime loans that are now facing foreclosure should consider pursuing subprime mortgage litigation if other assistance from their lender is not provided.  Since it was the lender’s fault that the loan was issued in the first place (they just as easily could have refused to issue the loan if they were sure that it would fail), the borrower can only be held partially responsible.  The borrower should request assistance in the form of a loan modification before pursuing damages in court, but for those who are unsuccessful in being approved for a loan modification, no time should be wasted in exploring legal options that can help the borrower stay in their home.

When an attorney agrees to represent a person in a subprime mortgage litigation case, they should conduct an audit of the original loan documents to uncover instances of illegal or predatory lending practices.  If any are discovered, the borrower will have a much easier time negotiating with the lender because the illegal or predatory act will often be tied to the person’s inability to pay their minimum monthly payment.  An attorney will be able to determine to what extent damages should be sought if it appears that predatory or illegal lending practices were the main causes of a loan falling into default.

If a person is in fear of facing foreclosure, whether they hold a subprime mortgage or not, they should make every effort to meet with an attorney before requesting a modification.  The attorney will be able to increase the odds that the person is approved for a modification through review of legal documents and various negotiation tactics, which will hopefully allow the borrower to avoid a subprime mortgage litigation case.  This is not to say that litigation should be avoided, but reaching a fair settlement out of court rather than being forced to litigate is often the preferred course of action.

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