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Home Equity Basics
House keys and a $1 bill in the background
home equity
Scam artists

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.

Do's and don'ts
Don'ts
Protect yourself against sharks:
Do's
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.

 

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