Home Equity Loan Scams
Avoid Becoming a Scam Victim by Following these Guidelines
Consumers can protect themselves from becoming victims of home equity loan scams by educating themselves and being wary when considering a home equity loan.
The mortgage market is currently wild and volatile. No matter what the atmosphere is like, however, consumers should educate and protect themselves from becoming victims by being familiar with the most common frauds and scams, and by vigilantly practicing safety precautions.
The Importance of a Mortgage
The greatest single asset most people will own is their own home. Unfortunately, a loan that's based on the equity in a home puts this most valuable asset at risk. The elderly, minorities and those with low incomes or poor credit should be extremely careful when borrowing money based on their home equity. Abusive or exploitative lenders target these borrowers, who unwittingly put their homes on the line.
Typical Home Equity Loan Scams
Equity Stripping
When equity in a home is built up and money is tight, it’s tempting to take out a home equity loan. That’s why unscrupulous lenders swoop in to take advantage of these situations.
Dishonest lenders in these circumstances will encourage homeowners to take out equity loans, even if the homeowners know they don’t have enough income to keep up with the monthly payments. These lenders may encourage potential targets to pad their incomes on application forms to help get these loans approved.
These lenders don’t care if the owners can't keep up with the monthly payments. As soon as they don’t, the lenders will foreclose, taking the homes and stripping the borrowers of the equity they have spent years building.
Hidden Loan Terms
Lenders can seem like saviors when homeowners fall behind in mortgage payments and are facing foreclosure. Refinancing a mortgage may lower monthly payments, but it’s important to look carefully at the loan terms. The payments may be lower because the lender is offering a loan on which only the interest is paid each month. At the end of the loan term, the entire principle is due in one lump sum called a balloon payment. If the payment can't be made or the mortgage can’t be refinanced, foreclosure is a real possibility.
Signing Over the Deed
Homeowners who are having trouble paying their mortgages and are threatened with foreclosure may feel desperate. Corrupt lenders look for these targets. They will contact them with an offer to help them find new financing.
Oftentimes, these lenders will state that before they can help, the deeds to the properties must be signed over to them. They will state that it's a temporary measure to prevent foreclosure. This is the beginning of a sad story, because the promised refinancing will never come through.
Once these lenders have the deeds to these properties, the homes belong to them, and they will start to treat the homes as such. They may borrow against the homes for their own benefit, or even sell them. Because they now own the homes, the lenders will treat the previous owners as tenants at best.
Mortgage "Don'ts"
- Never agree to a home equity loan if enough income is not available to make the monthly payments.
- Never sign any document without reading it or any document that has blank spaces.
- Never sign any document under pressure.
- Never deed a property to anyone. Consult an attorney, a knowledgeable family member, or someone trustworthy.
