Darin and Christina Cunningham | Re/Max Elite
278 Franklin Road Suite 190 | Brentwood, TN 37027
Office: 615.661.4400 | Fax: 615.661.4115
Christina: 615.394.4168 | Darin: 615.456.4086

How To Not Get Burned By Equity Stripping Scams

An equity stripping scam goes by different names. You have equity skimming, predatory lending, foreclosure remedy, foreclosure reconveyance, etc. There are many variations of the scam but the basic model is this: a person will approach homeowners with low income but high equity and convince them to refinance their homes to get cash and avoid a foreclosure.

Be careful as the lender’s motives might be to help themselves more than the distressed homeowner.

The main objective can be to milk some money from the homeowners, then evict them from the property so it can be sold on the market for profit.

Watch Out For Scams

A vulnerable homeowner is actually very easy to spot. The primary technique is to scour through foreclosure listings from banks and housing institutions. Some will also comb through the foreclosure bidding ads in newspapers or websites. Unfortunately, some of these players have contacts on the inside who will give them the full details of the homeowner.

After which, they will contact the homeowner who is facing foreclosure, introduce themselves with vague titles and start the sweet talk. Understand that they may have had years of practice and scam artists can be excellent at reading people. Desperate people sometimes cling to whatever lifeline they are given, even if it’s too good to be true.

Another way some of these folks find their way to your door is through flyers. They insert an ad promising fast cash on a loan modification on windshields, mailboxes or underneath front doors. In a neighborhood of hundred families, just one who will take the bait will be worth the investment.

How The Equity Stripping Scam Works

The trick is to bury the homeowner with a lot of technical terms and legalese. The objective is two-fold: a.) to confuse them and b.) to impress them.

When the paperwork comes, expect to get voluminous documents in small font because most people will not read the fine print.  Another annoying tactic is that they may deduct closing fees and their transaction costs from the money.

They will ask you to transfer the deed to their name with the promise to settle your obligations with the lender. Meanwhile, “out of the goodness of their hearts,” they will rent the property to you until you have paid back the principal. Of course, the rental cost will be higher than the mortgage because the main goal is to squeeze you until you are evicted.

Protecting Yourself from Equity Stripping Scams

The simple way to protect yourself is to not entertain strangers offering to get you cash against your home. Go to your bank or other legitimate financing institutions. Don’t transfer the deed without first consulting a lawyer. If you are facing foreclosure, talk to your lender and find out your options for a loan modification. You can also get a real estate agent who is an expert in foreclosures or short sales.

It should be noted however that equity stripping as a means of protection is a sometimes used legal measure that may protect the homeowner from future takeover. This can be done to frustrate collection efforts by unsecured creditors. The idea is to attach too many encumbrances to the house and cut off its equity to scare away creditors. Although this should be differentiated from the lending scam explained above, this practice is no less dangerous.

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