Home Equity Scams
Your home is probably your most valuable possession. But, if you agree to a loan that’s based on the equity you have in your home, you may be putting your most important asset at risk.
Watch out for abusive lending practices like these that could cause you to lose your home:
- Asset-Based Lending: The lender makes a loan based upon the equity in your home, without considering whether or not you can make the payments. If you can’t keep up with the payments, the lender will foreclose – taking your home and the equity you spent years building.
- Loan Flipping: A lender keeps encouraging you to refinance your original loan with a new long-term, higher cost loan. Each time the lender “flips” the existing loan, you must pay new points and fees, which are added to the loan balance. These added costs will eat up the hard-earned equity that you have earned.
- Packing: You receive a loan that contains charges for products or services you didn’t ask for and don’t need. “Packing” used to involve the inclusion of long-term credit insurance on home loans. North Carolina law now prohibits lenders from financing credit insurance on home loans.
- Hidden Balloon Payments: A lender may offer to refinance your mortgage and lower your monthly payments. Look at the loan terms carefully. The payments may be low because you’ll owe a huge lump sum called a balloon payment at the end of the loan term. If you can’t make the balloon payment, you could lose your home.
- The Home Improvement Loan: A contractor offers to perform work on your home and tells you he can even arrange financing. You agree to the project and sign some papers, only to realize later that you’ve agreed to a home equity loan with high interest rates, points and fees. Make sure you understand who is making the loan and that you have recourse against the contractor if he never finishes work on your home or does a poor job.
- Mortgage Servicing Abuses: After you get a mortgage, your loan and loan payments may be handled by your lender or by a third party known as a servicer. Make sure that your lender or servicer does not add charges that you don’t understand – such as legal fees, inaccurate late fees, and extra insurance – to your loan. You are entitled to a written explanation if any additional fees are added to your account. By law, you can also request an itemized loan history statement from your servicer without charge once in every six month period.
- Signing Over Your Deed: If your lender has threatened to foreclose, a foreclosure “rescue” outfit may promise to help catch up your payments to avoid foreclosure. The rescue outfit will promise to let you stay in your home while asking you to deed your property over. But once you sign over the deed you can be evicted, because you have lost control over your house. In addition, signing over your deed doesn’t get you out of the responsibility for paying your mortgage. Finally, the rescue scammer can also borrow money on any equity you had in the house.