HOME EQUITY SCAMS
CERTAIN LENDERS TARGET SPECIFIC GROUPS...
QUESTION: Did you know you could lose your home and your
money, if you borrow from unscrupulous lenders who offer you a high-cost loan
based on the equity you have in your home?
Certain lenders target homeowners who
are elderly or who have low incomes or credit problems, and then try to take
advantage of them by using deceptive practices. The Federal Trade Commission
cautions all homeowners to be on the lookout for:
- Equity Stripping: The lender gives you a loan, based on
the equity in your home, not on your ability to repay based on your income. If
you can’t make the payments, you could end up losing your home.
- Loan Flipping: The lender encourages you to repeatedly refinance
the loan and often, to borrow more money. Each time you refinance, you pay additional
fees and interest points. That only serves to increase your debt.
- Credit Insurance Packing: The lender adds credit insurance
to your loan, which you may not need.
- Bait and Switch: The lender offers one set of loan terms
when you apply, then pressures you to accept higher charges when you sign to
complete the transaction.
- Deceptive Loan Servicing: The lender doesn’t provide
you with accurate or complete account statements and payoff figures. That makes
it almost impossible for you to determine how much you have paid or how much
you owe. You may pay more than you owe.
Some of these practices violate federal credit laws dealing with disclosures
about loan terms, discrimination based on age, gender, marital status, race,
or national origin and debt collection. You also may have additional rights under
state law that would allow you to bring a lawsuit. The FTC suggests if you’re
thinking about using your home as collateral for a loan, be careful. Unless you
can make the loan payments out of current income, you could lose your home as
well as the equity you’ve already built up.
Some Tips To Remember
- The lure of extra money or the chance to reduce monthly credit payments can
be very costly in the end. High interest rates and other credit costs could get
you in over your head.
- Credit insurance may not be a good deal from a lender. If you want the added
security of credit insurance, shop around.
- Don’t sign a loan agreement if the terms are not what you were given
when you applied.
- Ask for an explanation of any dollar amount, term, or condition that you
don’t understand. Federal law is very clear about what credit and loan
term information must be provided in writing when you apply for a loan
and before you sign any agreement.
In addition, shop around for the best loan terms and interest rates. Contact
lending institutions, such as banks and credit unions, and consult a legal or
financial advisor, or someone you can trust before you make any loan decisions.
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Information provided by this website is general and is not a substitute for professional
advice. Please consult your investment advisor and/or attorney before entering
into any transaction.