If you're a homeowner, you probably receive
lender solicitations over the phone, by mail or
via door-to-door sales. There are also countless
print and TV ads encouraging you to tap into the
equity in your home.
These offers can be tempting if you're hard up
for cash or longing to fulfill a dream of taking
an around-the-world cruise on the QEII.
Some lenders target elderly homeowners or those
with low income or credit problems, then take
advantage of them with deceptive practices, including
disguising the fact that they are using their
home as collateral for a loan.
Here are some of the most common ways dishonest
lenders scam homeowners:
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.
They don't care that you can't afford the loan
because they've got their eyes on your equity.
If you default on the payments, they foreclose,
taking your home and stripping you of the equity
that's taken years to build.
Loan flipping: This is where a lender encourages
you to repeatedly refinance your loan and borrow
more money. Let's say you've got a nice, comfortable
low-interest loan you've been paying for years
building equity. Using the temptation of extra
cash, the lender talks you into refinancing the
loan.
After you've made a few payments, the lender
comes calling again -- offering an even bigger
loan. You accept, and the lender refinances the
original loan and sends you more money. But in
refinancing, the lender has charged high points
and fees and your interest rate has gone up. You
have some extra money, but you also have a lot
more debt stretched out over a longer period of
time. The cash you received may be less than the
costs incurred by refinancing. With each "flip"
of the loan, you've increased 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
this will add to the cost of your loan, or they
tell you the insurance comes with the loan, making
you think there's no extra cost.
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 lender 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
lender starts sending you letters saying your
payments are going to be higher than expected.
They may tack on taxes and insurance you had already
arranged to pay yourself; late fees even though
your payments are 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
remodel your two bathrooms. The contractor tells
you they can arrange financing through a lender.
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, saying it's temporary to
prevent foreclosure.
Once the lender has the deed to your property,
they treat it as their own -- borrowing against
the equity or selling it. You've become the tenant,
with the lender demanding "rent." If
the rent is late, the lender may try to evict
you.
Protecting yourself against sharks
NEVER, EVER:
1. Agree to a home equity loan if you can't afford
the monthly payments.
2. Fold under pressure to sign documents.
3. Sign documents you haven't read or that have
blank spaces to be filled in after you have signed.
4. 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.
5. Allow the promise of extra cash or lower monthly
payments to cloud your judgment about whether
the cost is worth it.
6. Deed your property to anyone. Instead, talk
with an attorney or someone else you trust.
ALWAYS:
1. Demand an explanation of any cost, term or
condition you don't understand. Federal law is
very clear about what information must be provided
in writing when you apply for a loan and before
you sign any agreement.
2. Shop around if you want credit insurance. Buying
it from a lender may not be a good deal.
3. Keep meticulous records of what you have paid,
billing statements and canceled checks.
4. Challenge charges you think are inaccurate.
5. Check contractors' references before having
work done on your home, and get more than one
estimate.
6. Keep a copy of everything thing you sign.
7. Be sure you are dealing with a reputable lender.
You may want to check with your local Better Business
Bureau, state licensing authority, chamber of
commerce or a consumer protection agency.
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