Home Equity Fraud

Protect Yourself and Your Home
Beware of Home Equity Loan Scams


Do You Own Your Own Home?
Bad Practices of Scam-Artists
Tips to Protect Yourself from Scam-Artists
For More Information

                                        

Do You Own Your Own Home?

If you own your own home, it is likely your largest asset.  Unfortunately, the equity in your home is attractive to others.  If you have lived in your home for many years and the loan balance owed is very low or even paid off, you may be a special target for scam-artists.   

Do not put your home equity at risk by entering into agreements that are nothing more than gimmicks.  The following is a list of common scams and bad practices used by others who wish to take advantage of your good fortune.  Do not be fooled, an offer that is too good to be true usually is.       

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Bad Practices of Scam-Artists

Equity Stripping Through Home Stealing

Equity stripping is a tactic where scam-artists target low income homeowners who face foreclosure.  When you fall behind on your mortgage payments your foreclosure notice is posted in the local newspaper. 

Scam-artists obtain your contact information or publish an advertisement stating that they are a company that can assist you with keeping your home through simple refinancing.  They then tell you that you will sign over the deed to your home to them and pay rental payments.  When the debt is paid off, you will receive the deed back. 

This is a scam.  When the refinancing company receives your deed they either stop making the mortgage payments and your original lender seeks foreclosure, or, since you are nothing more than a renter, if you do not pay your rent on time, the person who holds the deed could evict you from the home. 

Be very cautious of someone who says that you can save your home by signing your deed over to them.  Without the deed, you do not own the home. The person you thought was helping you save your home, actually stole it from you.


Hidden Terms

The most important thing you can do when entering into a home equity loan is to read all of the documents thoroughly.  The documents are lengthy and very dense, but reading the agreement is very important because some lenders include clauses that will affect you negatively.  The only way you can discover these clauses and question them is by knowing that they are there and understanding what they mean.

If you do not understand what you are signing, do not sign it!  Take the time to have the loan agreement reviewed by your lawyer, your financial advisor or someone else you trust.  They will be able to point out any hidden terms and advise you on whether the loan agreement is beneficial for you.  The extra time you take to have the loan agreement reviewed will be well worth it and you may be able to avoid problems that could end up costing you your home. 

One of the most common terms hidden in a loan agreement that could have a significant impact on you, the borrower, is a "balloon payment." If you have entered into an "interest only" loan where the loan agreement states that you will owe a large payment at the conclusion of the loan terms, that large payment is called a balloon payment.  Balloon payments can total tens of thousands of dollars, which is all due in one payment.  The reason the balloon payment is due at one time is because under the terms of an "interest only" loan, the interest on the loan is paid, not the principle.  So, when the loan terms have ended, your lender wants payment for the remaining principal. 


Loan Flipping

Loan flipping is a tactic where your loan officer works hard to convince you that it is in your best interests to refinance your debt to a lower interest rate.  Your loan officer tells you that refinancing will free up equity that you can receive as cash.  The loan officer is correct, it does free up cash for you.  But, what your loan officer is not telling you is that every time you refinance, you face new closing costs, new appraisal costs, possible pre-payment penalties and other similar fees.        

This is a way for your loan officer to charge you fees for something you likely do not need.  If your home is paid for, nearly paid for, or if you are comfortable with your current mortgage agreement, it does not make sense to refinance again and again.  Your loan officer is preying on your desire for cash.  So, do not allow yourself to be tricked into thinking that refinancing multiple times is a good idea.  It is only beneficial for your loan officer.  


Home Improvement Loans

As a homeowner, you may be approached by a scam-artist contractor asking if you are interested in making improvements to your home.  You may be interested, but you tell them that you do not have the money to pay for such a project.  At this point, the scam artist tells you that you do not need to pay the cost outright, you could use the equity in your home to finance the job.

After the contractor begins, you will likely be asked to sign a lot of paperwork.  You are leery about signing the documents but you do not want the contractor to leave the work unfinished.  This is a scam.  By putting pressure on you to sign the loan paperwork you may end up entering into a home equity loan that has high points, high fees, and a high interest rate. 

After the agreement is signed the contractor will have very little interest in completing the job because they already have you on the hook with a loan and you are then stuck with a new home equity loan in addition to poorly done or incomplete work that you have to pay to get fixed.  Do not allow yourself to be pressured into signing a loan agreement.    


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Tips to Protect Yourself from Scam-Artists

  • Do not sign any document you have not read or any document that has blank spaces to be filled in after you sign. 
  • Resist being pressured into signing something you have not read or do not understand. Michigan law gives you three days to cancel, without penalty or obligation, any contract solicited at your home.  
  • Do not allow the promise of cash or lower monthly payments to get in the way of your good judgment about whether the costs of the loan are worth it.

  • Do not deed your property to anyone without consulting an attorney, a knowledgeable family member, a financial advisor, or someone else you trust.

  • Keep records of the payments you have made along with billing statements.

  • Ask questions if you do not understand terms in the document you are being asked to sign.

  • Be sure that both your loan officer and the lender they work for are licensed or registered with the Office of Financial and Insurance Regulation and therefore are authorized to sell mortgages in Michigan.  To find out if a loan officer or lender is licensed or registered, contact the Department of Insurance and Financial Services at 1-877-999-6442.

  • If you do not get straight answers from your loan broker or you feel uneasy about the arrangement, seek a loan from a different lender or broker.

  • Ask for references from any contractor who comes to your door seeking to sell you home-improvement services. Check those references before agreeing to have any work done on your home.

  • Get all guarantees, warranties, and promises in writing, including start and completion dates.  A clear and detailed contract is only beneficial for you.

  • Beware a contractor who gives only a post office box address as a business address instead of a street address and phone number.

  
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For More Information

Federal Trade Commission

The Federal Trade Commission works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint or to get free information on consumer issues, visit www.ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357).

National Foundation for Credit Counseling

For more information on foreclosure rescue scams, to speak with a certified housing counselor, or for general information on sound financial principles, visit http://nfcc.org, or call the National Foundation for Credit Counseling at 1-800-388-2227.

Michigan Department of Insurance and Financial Services

For more information on mortgages and to find out if the mortgage company or loan officer you are using is licensed, contact the Department of Insurance and Financial Services online at www.michigan.gov/difs or call 1-877-999-6442.

Michigan Department of Attorney General

If you believe you have been the victim of a scam, you can call the Michigan Department of Attorney General at 1-877-765-8388 or you can file a complaint online at www.michigan.gov/ag.


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