Daily Interest Mortgage Loans Are Dangerous
By L. Jed Berliner, Marlborough & Springfield, MA Foreclosure Defense Attorney on Nov 28, 2009 in Foreclosure Defense, Interest and Fees, Predatory Lending
Most mortgages accrue interest monthly, with an added late charge if, well, if you’re late with the payment. On rare occasion the worst of the lenders sneak in a daily interest loan which accrues interest, mmm, daily. No late charge needed; the interest just keeps growing.
Consider this. You missed the January payment. (It’s November as I write this). With the usual mortgage, you’d be behind one payment plus the late charge. With a daily interest mortgage, you’re behind the the principal portion of that January payment plus ten months of extra interest on the entire principal of the loan. Ouch!
Now, let’s consider Chapter 13. It’s commonly used to cure a mortgage arrears. With the regular mortgage and the above facts, you’d pay the one missed payment and the late charge in equal monthly payments over the duration of your Chapter 13 plan.
A daily interest mortgage loan in a 36 month Chapter 13 will have you paying the principal portion of the missed payment plus 36 months of extra interest on the entire principal of the loan. Double-ouch!! You may never be able to pay off the arrears.
The worst part of all this is that you might not know when you’ve signed a daily interest mortgage loan. The text will appear on the Note in a vague manner, something like: “interest will be calculated on an interest-bearing basis”. That’s it. That’s all the warning you get.
Remedies to this terrible situation are untested. Inaccurate disclosures might permit rescission of the mortgage. Usury, fraud and unfair and deceptive trade practices might also be available. These arguments are only now being filed and have not yet reached judgment. A vigorous attack might succeed or lead to an acceptable, affordable new mortgage. Either way, you get to keep your home.
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