While federal and state predatory lending laws are enacted to reduce fraudulent or unfair lending…
Current and prospective homeowners are wise to familiarize themselves with the several ways they can be set up to lose their property, whether the set up is intentional or not.
Common ways consumers can lose their homes include the following:
Equity Skimming. In this scenario, a person identifying himself as a buyer convinces the homeowner to sell his property to him, oftentimes for less than market value, and promises to pay off the mortgage. He persuades the current homeowner to transfer the deed of the property to him, to move out of the house, and to stop interacting with his mortgage lender. Then the buyer rents the property to a third party, collects monthly rent, and may not follow through with making mortgage payments, which results in foreclosure.
The skimming aspect occurs when the homeowner has a reasonable amount of equity and the buyer flips the property to pay off the debt, then profits by keeping the equity.
Prior to signing the deed to their property over to a third party, homeowners are wise to remember above all that they must fulfill mortgage obligations and somehow ensure the mortgage getting paid anytime they choose to negotiate terms with prospective buyers.
Equity Stripping. In an equity-stripping scam, unscrupulous mortgage lenders offer consumers loans, even when they know the prospective buyers do not qualify because of inadequate income and assets to carry the loan.
Such lenders encourage buyers to exaggerate their income on application forms to get their loans approved. Buyers accept the loan because they need the money and even more so because they, the lender himself, has encouraged them, even though they are not certain themselves that they can afford the monthly payments. However, the moment the buyer defaults on his mortgage payments, the lender does not hesitate to foreclose and strip the buyer of his home’s hard-earned equity.
Phony Counseling Agencies. Consumers can find a large number of phony counseling agencies that, for an outrageous fee, offer services of making a few phone calls on the buyer’s behalf and completing paperwork. Some of these agencies may negotiate a repayment plan with the consumer’s lender or organize a pre-foreclosure house sale on behalf of the buyer.
However, for little or no cost, homeowners can easily do the footwork themselves.
The aim of these agencies is to mislead buyers and to stop them from getting the help they do need.
Buyers are encouraged to confirm the credibility and reputation of agencies prior to utilizing their services and are advised against accepting less than a property’s worth to pay up front for foreclosure services.
Refinancing Scams. Homeowners on the brink of foreclosure may be tempted to work with lenders offering to rescue them from their dire situations by refinancing their loans with lower mortgage payments. And in the beginning, the mortgage payments may be considerably lower, because homeowners are paying interest only.
However, at the end of the term, homeowners may discover suddenly that the total amount they borrowed is still due in a lump sum balloon payment. And if they cannot make the entire balloon payment or get their loans refinanced, they risk losing their homes to the lender.
Phony Loan Transactions In phony loan transactions, lenders introduce homeowners to a refinancing loan document that claims to bring their delinquent loans current. However, the fine print of the document may also transfer the title of the homeowner’s home to the company’s name for a very small part of its value.
Oftentimes, terms of a loan include pre-payment penalties, balloon or interest-only payments, huge fees, and immediate rate adjustments. Therefore, homeowners are prudent to get all legal documents assessed by an attorney before signing them. (For more details, google “Mortgages: Fixed-Rate Versus Adjustable Rate and ARMed And Dangerous.”)
Loan Flipping. In this type of scam, lenders may offer to refinance the homeowner’s loan and may tempt him with extra cash. If the homeowner accepts and consents to refinancing the loan, sometimes the lender can persuade him to refinance his loan again, with the offer of more cash for vacations or home renovations.
Some homeowners accept the offer, not realizing that oftentimes the extra cash is much less than the additional refinancing fees and costs the lender is charging.
In this scam, oftentimes the homeowner’s lender fails to explain to him that the increase in the loan implies either added fees and points for refinancing, higher interest rates, or even prepayment penalties each time the consumer takes out a new loan.
Repetitive refinancing can lead homeowners deeper into debt and ultimately lead to foreclosure of his home. (For more details, Google “Digging Out Of Personal Debt.”)
Internet and Phone Scams. Some lenders convince consumers to apply for low interest mortgage loans on the phone or internet and by this means extract vital information about the consumer’s social security and bank account numbers.
In this scam, the loan is immediately accepted and the buyer is directed to start faxing documents and sending wire transfer payments to the phony company without even meeting the lender.
Sadly, this scam creates twice the headaches because personal identity can be utilized fraudulently or sold, and the homeowner’s property is at risk of foreclosure. (For more details, Google “Identity Theft: How To Avoid It and Identity Theft: What To Do If It Happens.”)
Consumers are advised to acquire loans they can afford, in person only, and only with credible, reputable companies, also to ensure they understand related terms and conditions prior to making a written commitment, and to resolve any doubts and reservations prior to making written commitments.