There are some dishonest lenders out there, willing to take advantage of your desire for cash and cheat you out of your equity. Here are common scams:
A lender says you can get a home equity loan even though you know your monthly income isn’t enough to keep up with the payments. The lender encourages you to pad your income on the application so the loan will be approved. Such a lender has his eyes on your equity. If you default on the payments, the lender forecloses, takes your home and strips you of the equity.
This is where a lender encourages you to refinance your loan repeatedly. In refinancing, the lender charges high fees. In most loan-flipping cases, each successive loan is for a higher amount as fees are rolled into the loan amounts. With each flip of the loan, you increase your debt. If you get in over your head, you could lose your home.
Credit insurance packing
You’ve just agreed to a line of credit home equity loan on terms that seem affordable. At closing, the lender gives you papers to sign that include charges for credit insurance or other “benefits” that you didn’t ask for and don’t want. The lender hopes you don’t notice and doesn’t explain how much will be added to the cost of the loan.
If you do notice and object, the lender may use scare tactics, telling you that if you don’t want the insurance, the loan will have to be rewritten, resulting in a delay and even reconsideration of your application. If you agree to buy the insurance, you end up paying extra for a product you do not want or need.
Deceptive loan servicing
The loan servicer fails to provide you with accurate or complete account statements and payoff figures, making it almost impossible to determine how much you have paid and still owe. Or, after you get your loan, the servicer starts sending letters saying your payments are going to be higher than expected. The servicer might tack on taxes and insurance you had already arranged to pay yourself, late fees even though your payments have been on time or legal fees you don’t understand.
Amid the confusion, you are paying more than you owe.
The home improvement loan
A contractor knocks on your door and offers to put on a new roof or resurface the driveway. The contractor offers to arrange financing. You agree and the contractor starts work. Later, the contractor gives you papers and tells you the job will be halted unless you sign them. Unbeknownst to you, you have agreed to a home equity loan with high points, fees and interest. To make it worse, you’re not happy with the work being done and the contractor, now that he has your signature, is not showing up for work every day.
Signing over your deed
You are having trouble paying your mortgage and the lender has threatened to foreclose. A “lender” contacts you with an offer to help you find new financing. In the meantime, the lender wants you to deed your property to him, calling it a temporary measure to stave off foreclosure.
Once the lender has the deed to your property, he treats it as his own, borrowing against the equity or selling the house. You’ve become the tenant, with the lender demanding “rent.” If the rent is late, the lender can evict you.
Protect yourself against sharks:
Things you should always do:
|Never agree to a home equity loan if you can’t afford the monthly payments.||Demand an explanation of any cost, term or condition you don’t understand.|
|Don’t fold under pressure to sign documents.||Shop around if you want credit insurance. Buying it from a lender may not be a good deal.|
|Refuse to sign documents you haven’t read or that have blank spaces to be filled in after you have signed.||Keep meticulous records of what you have paid. File all the billing statements.|
|Never agree to a loan that has extra products you don’t want to buy, such as credit insurance, or that includes terms that weren’t there when you applied.||Challenge charges that you think are inaccurate.|
|Don’t allow the promise of extra cash or lower monthly payments to cloud your judgment about whether the cost is worth it.||Check contractors’ references before having work done on your home, and get more than one estimate.|
|Don’t deed your property to anyone. Instead, talk with an attorney or someone else you trust.||Keep a copy of everything you sign.|
|Be sure you are dealing with a reputable lender. You may want to check with your Better Business Bureau, state licensing authority, chamber of commerce or a consumer protection agency. Ask trusted friends and relatives for referrals to lenders.|