"Equity Stripping" Scams On the Rise
Beware:
"Behind on Payments, We Can Help"
This practice, known as equity stripping,
is on the rise as more homeowners fall victim to the practice. In
general, mortgage "rescuers" arrive on the scene when homeowners fall
behind on mortgage payments or are on the verge of losing their homes.
The rescuers usually promise to buy the
house for a year, collect rent from the homeowner and provide the
homeowner with the option to buy back the house in a year after they
have "improved" their credit.
In fact, they obtain title to the home,
take out a new mortgage that exceeds what was owed on the old mortgage
without the homeowner's knowledge and pay the homeowners a paltry sum --
much less than the equity they had in their homes. Homeowners have lost
as much as $35,000 to $70,000 of equity in their homes to these mortgage
fraud schemes.
The mortgage rescuers use tactics such
as:
telling consumers they will buy them time to help them catch up on
their payments;
telling consumers that they will help them obtain financing at the end
of the lease period to help them repurchase their properties;
inducing consumers to enter into lease agreements when the rescuers
know the consumers will not be able to afford the monthly payments,
which usually are much higher than the consumers' old mortgage payments;
inducing consumers to enter into options to repurchase their homes
when the rescuers know the consumers will not be able to afford a new,
higher mortgage;
inducing consumers to transfer the titles to their homes, without the
consumers' full knowledge of the nature of the transaction; and
instructing homeowners to sign blank and incomplete paperwork, which
prevents them from fully understanding the terms of the transaction.
Beware:
"We can tap your equity even if income or
credit is a problem!"
In this type of "equity stripping", a
lender may tell a homeowner that they can get some extra money using the
equity built up in the home. This is a common practice because the home
is quite often a valuable asset, even for those whose overall credit
rating is low. What happens is that the lender offers the homeowner an
equity home loan.
When used judiciously, a home equity loan
can provide a good way to consolidate debt and possible rebuild credit.
Unfortunately, this type of home loan can also be used to deprive you
of your house. The scammer accomplishes this by offering the
borrower a loan that is more than he or she can actually afford. The
lender may even pad the income in order to ensure home loan approval.
Because the payments are barely
affordable (and may not even be that), it is only a matter of time
before the borrower can no longer make the payments on time. The lender
then forecloses on the house, taking the equity. The proceeds from the
resale of the home go to the lender, and the former homeowner is out of
luck: no house and even worse credit.
Homeowners should be wary of lenders who
approach them about a home loan based on equity, especially if their
credit is in decline. Someone thinking about refinancing should approach
lenders, after seeking counseling from a reputable source if bad credit
is a factor. One should take a hard look at finances before deciding to
take out a home loan based on their equity. One should never take out a
loan for more than can be confidently paid each month.
Just Be Cautious!
Like many predatory lending practices,
equity stripping is not illegal. However, it can give the lender
ownership of your home. It is essentially mortgage fraud and can happen
in an equity loan or any other type of mortgage loan.
There are a variety of ways con artists
take advantage of homeowners with equity stripping scams, but it usually
starts when a lender tells you that you can get a loan by using your
home's equity, even though you know your income won't sustain the
increased payments. The lender may even ask you to exaggerate your
income to qualify for the cash loan.
Let that be the first warning sign that
the lender doesn't care if you are able to make the monthly mortgage or
not. The lender would rather strip you property's equity and foreclose
on your home.
All lenders on this site have signed a
Residential Mortgage Advocate (RMA) commitment to be totally upfront about
their fees, rates and items they will need from you.
Been Scammed or Dealt with an Unethical Lender?
Contact Us or Report it to
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