Home Loan Genius - Mortgage Loans - Home Equity Loan

While you might not fall for these slick come-ons, perhaps your mom or dad or a grandparent would. These shady companies typically prey on homeowners who are elderly, as well as those who are experiencing credit problems.

Thousands of senior home owners nationwide have become the victims of scam artists who convinced them to sign away the equity in their homes in return for often unneeded repairs or high interest loans. The loss of homes is especially acute in the African American community and other minority inner-city neighborhoods, where mainstream credit opportunities are scarce and low income residents are vulnerable to fraud.

Any attempt to steal the equity in someone's home is home equity loan fraud. Swindlers have gotten quite creative about ways to do this. While state and federal laws give home owners and their advocates some tools to fight back with, the most effective way to avoid home equity loan fraud is not to fall for it in the first place.

In 1998, the Federal Trade Commission issued a consumer alert on these home equity scams. Here are some unethical practices to look for:

- Home repairs. Door-to-door salespeople offer "easy financing" for home improvements and repairs, often working in cahoots with unscrupulous lenders. The work they recommend may not be needed at all and often they do a very shoddy or incomplete job. The loans they arrange are secured by your home and often carry very high interest rates and other costs. Often the required monthly payment is so far out of line with the borrower's income that failure to pay and foreclosure are almost inevitable.

- By caretakers, friends or family members. These people befriend senior homeowners and gain their trust. Then they convince the homeowners to sign over the houses to them or set up home equity loans and lend them the proceeds but fail to make the payments. Family members often talk seniors into taking out or co-signing loans on their homes. Seniors have an understandable desire to help family members. But remember that this is the roof over your head and your most valuable asset that you are jeopardizing.
Let your children/family members know that you are worried about foreclosure if the loan is not paid. You may want to consult a lawyer. Attorney's consultation fees usually are not high, but if you have a low income, contact your local legal aid society or Consumer Credit Counseling Service office for assistance in averting foreclosure.

- Equity stripping. The lender issues a loan, based on the equity of your home, not on your ability to pay. If you can't make the payments you could lose the house. People need enough to live on and pay their other bills. Because of this, most reputable lenders won't approve applicants for housing-related loans that require payments of more than 28% of their gross income for all such loans in total. f you default on your loan agreement, the lender can take your house away from you, sell it and keep any profits from the sale. Scam artists are usually more concerned about the value of the collateral than about the borrower's ability to repay. Under federal law, lenders who show a pattern of making loans without regard to whether the borrowers can repay the loan may be subject to legal action.

- Home equity skimming. A home seller agrees to finance the sale for the buyer (owner financing). The buyer gives the seller a small downpayment. When the house is sold and the deed recorded, the new owner goes to the bank, takes out a home equity loan and disappears with the money. If the seller had recorded the lien on the new deed, no bank would have made a home equity loan to the new owner.

- Loan flipping. You are urged to refinance over and over again. Each time you refinance, you pay extra fees and interest points that only increase your debt.

- Bait and switch. The lender offers you one set of loan terms when you apply and then pressures you to accept higher charges when you sign the final papers.

- Credit insurance packing: Some lenders will attempt to sneak in charges for credit insurance and other so-called benefits that you did not request. The lender hopes you don't notice this and just sign the loan papers.

- Mortgage servicing abuses. You never get accurate or complete account statements. That makes it almost impossible to determine how much you've paid or how much you still owe. You may pay more than you should.

- Phony fly-by-night lenders. They set up offices in low income and minority neighborhoods, get homeowners' signatures on loan documents and then disappear with the loan money. To add insult to injury, the loans may be resold to another lender who then forecloses on the homes.

Often it is people who need additional money that also would benefit from debt counseling to help them avoid recurring situations. These same people are the most vulnerable to schemes and more likely to make a mistake that may threaten the loss of their home!