Home Equity Facts and Frauds

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In the age of a slowing house market, people will be facing very tough choices about managing debt, while scammers unfortunately will be trying to take advantage of difficult financial situations. It is more important than ever to be skeptical of offers for easy solutions to ease debt. In a survey of just 29 states, more than 100,000 people lost all of the hard-earned equity in their homes by way of fraud. Senior citizens are the most likely victims of equity fraud.

Here is an example of a typical case of fraud called “equity skimming”:

Utah, 2006: An elderly couple met two persuasive and kind gentlemen. The couple had a very favorable credit rating and discussed with the two men the possibility of purchasing a home as an investment. The men encouraged this, and additionally offered the couple an opportunity to take more than the home’s value ($600,000), and to invest the excess loans ($210,000) in a separate investment fund. From the extra investment, the couple is told they will make more money -- a “win-win” situation. Of course, none of the money ever was seen.

Based on their growing suspicions and failure to receive an initial promised sum of money, the couple quickly took action. They were lucky and were able to get back all of their money.

Usually, however, there is no money left in such cases, even if the scammers are caught. Beware of any offers touting an investment fund, “reserve” fund, or “insurance trust” for equity investment. Remember, if it sounds to go to be true…

• Believe it or not, there still are door-to-door scam artists -- sometimes they pose as contractors or repairmen. Assume anyone trying to sell something door-to-door is illegitimate and do not let him or her into a position that could jeopardize your finances or personal security.
  
• Never waste your time answering flashy ads on television, the radio, or (especially) the internet. No matter how tempting the promise, do not believe such advertising.
  
• The internet further poses a risk to your privacy by making you susceptible to spammers or phishing. Spamming is the computer version of junk mail. If you reply to spam mail, you can expect more spam mail to come your way because you have confirmed your e-mail address. Phishing is the situation in which someone poses as a trusted financial source - or even the IRS - to obtain your private data.
• Never sign any document relating to home ownership without seeking professional advice. Some equity scammers, in fact, have blatantly used Quit Claim deeds to steal entire homes. Do not put yourself in a position that will be difficult to get out of: challenging scams in and of itself is costly, and hurts those on fixed incomes.

If you would like to arrange a refinance, there are two rules to follow: (1) Never sign anything if you do not completely understand it; and (2) Never sign a blank document. While this may sound like common sense, it is amazing how much pressure people feel, and how much they want, to trust the person scamming them.

Additionally, some unfair loans will try to trap a borrower into interest-only payments and balloon payments. These often are attempts to make it impossible to pay-off the loan, and to allow a scammer to obtain the equity in the home via foreclosures. If you see these terms in a potential agreement, don’t walk - RUN - away from the negotiating table!

Shop around and use caution in searching for the best rates and offers. Scammers generally will run the minute they hear the dreaded words, “I think I’ll ask my lawyer…”

The law also entitles anyone who has entered into a loan program a “cool off period”. Within this three-day period, borrowers have an absolute right to cancel a loan through written notice. If you feel you have been pressured or cheated, this is the optimal time to free yourself of the loan.

Be very cautious when utilizing your home in your finances. Beware of scam artists by implementing the suggestions above, and always consult a lawyer about any concerns you may have before you sign anything.