| Borrower beware: Bad home equity
loan can lead to foreclosure |
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"We've had a number of clients
that have been sold life insurance that requires them to be working
-- when they're retired or disabled," said Simon. "With these insurance
products, the points you get charged, the high settlement costs
and whatever other junk fees you get charged, it's always financed
in.
"It's not like you need to write a check for
it, so it just eats up your equity," she added. "People often don't
know it's there because people are told there's no cash to close
and that it won't cost you anything."
How to protect yourself
If it's such a minefield out there for consumers in home equity
land, what can people do to protect themselves? Here are some tips
from experts Simon, Lee and Wilson, and from
Bankrate.com research.
Choose a reputable lender
That doesn't mean you should dismiss every telemarketing call or
direct mailer, but it does mean you should be careful when using
a company you've never heard of. Try going to a bank, credit union
or other federally regulated institution first. If that doesn't
work, consider no-name brokerages only if you've checked out their
backgrounds via references, referrals and state licensing agencies,
which keep tabs on businesses and individuals who have been censured.
Negotiate and shop
It sounds simple, but it can be the best way for consumers to avoid
getting scammed with above-market fees. Most subprime home equity
loan charges are negotiable because they are charged by brokers
who can accept less or more money for their work, rather than by
banks, which may have set fees that apply to all transactions of
a certain type.
Keep your eyes on what elderly relatives
are doing
This is especially important if they live alone or don't have the
same level of financial savvy you have. Equity scammers often target
older Americans because they are generally more susceptible to friendly
sounding salesmen. One attorney who specializes in victim protection
recalls a case where the lender actually sent birthday and holiday
cards to a woman even as it was allegedly bilking her out of her
equity.
Know your credit standing
Borrowers are generally classified with letter grades such as A,
B, C or D, depending on the number of times they've been late on
consumer loans or mortgages, filed for bankruptcy, applied for credit
cards in the past few months, etc. While the exact boundaries between
each category vary by lender, consumers should be able to figure
out approximately where they stand with a little common sense. See
our related story on how to check
your credit rating.
Don't sign until everything is in writing
Never sign documents the lender promises
to complete later just to avoid minor hassles.
If you have to take a half-hour off of work to come back tomorrow
and sign a completed, typed document, do so rather than signing
some handwritten application that the broker or lender can change
behind your back.
Ask an expert
Consider getting some financial counseling
from a local nonprofit or government-affiliated group if you've
never dealt with a home equity loan and are unfamiliar with how
they work. The
National Foundation for Consumer Credit runs Consumer Credit
Counseling Service offices in many cities, for example, and some
offer housing advice.
The three-day check
Try taking a last look
at everything after closing when there isn't a loan officer hovering
over you. Borrowers have a three-day "right of rescission"
with home equity loans, meaning they can cancel their transactions
and get all their money back if they choose to do so.
Want to know if you're dealing
with a predatory lender? Find out with our checklist.
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