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Home Equity Basics
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Scam artists

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:

Equity stripping:

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.

Loan flipping

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.

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