This is another in our multi-part series on protecting your rights against unscrupulous mortgage lenders through the Florida Fair Lending Act. Check out part one here, and part two here. If you believe your rights have been violated, check with a lawyer. Check back on Monday for the next installment.
(5) PREPAID PAYMENTS.—A high-cost home loan may not include terms under which more than two periodic payments required under the loan are consolidated and paid in advance from the loan proceeds provided to the borrower.
Lenders cannot make payments in advance from the proceeds of the loan. This tactic is common in other forms of financing, such as car or furniture financing where it is a useful sales tactic, but since it can leave borrowers short on funds they need to close on a home, the practice is illegal for mortgages.
(6) EXTENDING CREDIT WITHOUT REGARD TO THE PAYMENT ABILITY OF THE BORROWER.—A lender making a high-cost home loan shall not engage in any pattern or practice of extending high-cost home loans to borrowers based upon the borrowers’ collateral without regard to the borrowers’ ability to repay the loan, including the borrowers’ current and expected income, current obligations, and employment.
This is another practice that used to be shockingly common. Lenders would write up loans that their underwriters knew borrowers could not repay. They wrote loans far beyond what borrowers could afford, then blamed borrowers when they could not make payments. It is setting families up to fail and lose their homes.
(7) PAYMENTS TO A HOME CONTRACTOR.—A lender shall not make any payments to a contractor under a home improvement contract from amounts of a high-cost home loan other than:
(a) In the form of an instrument that is payable to the borrower or jointly to the borrower and the contractor; or
(b) At the election of the borrower by a third-party escrow agent in accordance with terms established in a written agreement signed by the borrower, the lender, and the contractor prior to the date of payment.
Lenders cannot make payments to contractors for work on a home without the borrower signing off on it or making some prior arrangement to set it up. There was a type of scam a while back contractors were being enlisted to help shady lenders facilitate fraud. This provision was put in place as a means to put a stop to that.