Discrimination, the ECOA, and Your Foreclosure
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Lenders who offer mortgage loans on a discriminatory basis may incur liability under the Equal Credit Opportunity Act, which punishes discrimination in credit. The Equal Credit Opportunity Act (ECOA) prohibits a variety of discriminatory lending on the basis of several factors. These include race, color, religion, national origin, sex, and marital status. Violations of the ECOA may also be violations of the Fair Housing Act.
Redlining and reverse redlining are practices that are prohibited by the ECOA. These involve providing different credit terms (or restricting lending products) to certain areas based on racial criteria. Red lining is when a mortgage company sections off certain neighborhoods or communities for reduced lending or higher cost loans on the basis of religition or other discriminatory standards. In effect, the bank puts a "red line" around such communities and potential loan applicants from these areas are denied credit.
Reverse redlining works in the opposite manner. A mortgage company or bank would establish lending practices that encouraged many more loans to flow into a certain area or demographic. This may be part of a classic pump and dump scheme, where lenders work to inflate the value of properties and provide funds to borrowers who can not pay them back. The lender then forecloses and is able to take the properties. Both redlining and reverse redlining are financially destructive to both borrowers and lenders, which is why the practice is somewhat rare.
Borrowers may have a very difficult time proving they have been the target of discrimination in a foreclosure case. If they suspect this, however, it may be worth their while to speak with an attorney who specializes in such cases. This is because liability under the ECOA may result in lenders being responsible for actual damages suffered by borrowers, punitive damages up to $10,000, and attorney fees. Some attorneys may work on contingency if a special case of discrimination is presented. It may be best at least to consult with an attorney before raising this defense in an answer to a foreclosure lawsuit.
The statute of limitations for violations of the Equal Credit Opportunity Act is two years. If homeowners took out their mortgage more than two years ago, this law may not apply to their mortgage. Again, the best course of action in the case of suspected discriminatory lending would be for homeowners to consult with an attorney who specializes in this area of lending law.
The Home Mortgage Disclosure Act (HMDA) requires financial institutions to publicly release information related to ECOA lending. These reports are provided to the public online and provide information on the percentage of loans offered to minorities by different lenders in various areas throughout the country. The general public is able to look up zip codes, how many applications each lender took in the area, the racial characteristics of various groups, and the interest rate offered to each group. This can be a starting point for borrowers researching potential discriminatory or predatory lending practices.
Although violations of the Equal Credit Opportunity Act may be somewhat uncommon in the mortgage lending industry, homeowners may want to make themselves aware of the law. However, the real estate bubble of the past decade had been more a result of all markets being artificially inflated and anyone who could breathe without the use of a machine was given a loan. This makes actual discrimination more unlikely, as the government set up the markets for bad investment and banks simply took advantage of any borrower coming through the door.
Nick writes daily articles specializing in how you can save your home from foreclosure while there is still time left before a trustee sale or eviction. Learn to defend the bank's lawsuit in court, find a reputable lawyer, delay a sheriff sale or eviction, qualify for a foreclosure loan program, and put together a reasonable alternative that will let you keep your property from being auctioned out from under your feet. Visit his site to read more about your options to avoid the loss of a house and understand more about how and why the real estate market has been collapsing for several years now: http://www.yousaveforeclosure.com/
