Articles > Money & Financing
Avoiding Home Equity Scams
You could lose your home and your money if you borrow from unscrupulous
lenders who offer you a high-cost loan based on the equity you have in your
home. Certain lenders target homeowners who are elderly or who have low incomes
or credit problems—and then try to take advantage of them by using deceptive
practices. The Federal Trade Commission cautions all homeowners to be on the
lookout for:
- Do not hire a contractor if he introduces you to a lender who gives you
a loan, based on the equity in your home, not on your ability to repay based
on your income. If you can’t make the payments, you could end up losing your
home.
- Do not hire a contractor if he introduces you to a lender who encourages
you to repeatedly refinance the loan and often, to borrow more money. Each
time you refinance, you pay additional fees and interest points. That only
serves to increase your debt.
- Do not hire a contractor if he introduces you to a lender who adds
credit insurance to your loan, which you may not need.
- Do not hire a contractor if he introduces you to a lender who offers one
set of loan terms when you apply, then pressures you to accept higher
charges when you sign to complete the transaction.
- Do not hire a contractor if he doesn’t provide you with accurate or
complete account statements and payoff figures. That makes it almost
impossible for you to determine how much you have paid or how much you owe.
You may pay more than you owe.
Some of these practices violate federal credit laws dealing with disclosures
about loan terms, discrimination based on age, gender, marital status, race, or
national origin; and debt collection.
You also may have additional rights under state law that would allow you to
bring a law suit.
The FTC suggests if you’re thinking about using your home as collateral for a
loan, be careful. Unless you can make the loan payments out of current income,
you could lose your home as well as the equity you’ve already built up. Some
additional tips to remember:
The lure of extra money or the chance to reduce monthly credit payments can
be very costly in the long run. High interest rates and other credit costs could
get you in over your head.
- Credit insurance may not be a good deal from a lender. If you want the
added security of credit insurance, shop around.
- Don’t sign a loan agreement if the terms are not what you were given
when you applied.
- Ask for an explanation of any dollar amount, term, or condition that you
don’t understand. Federal law is very clear about what credit and loan term
information must be provided in writing when you apply for a loan and before
you sign any agreement.
In addition, shop around for the best loan terms and interest rates. Contact
lending institutions, such as banks and credit unions, and consult a legal or
financial advisor, or someone you can trust before you make any loan decisions.
Or contact your local Fair Housing Office, legal aid, or senior services
organization for information and help.
The Federal Trade Commission (FTC) works for
the consumer to prevent fraudulent, deceptive and unfair business practices in
the marketplace and to provide information to help consumers spot, stop and
avoid them. To file a complaint or to get free information on consumer issues,
visit www.ftc.gov or call
toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters
Internet, telemarketing, identity theft and other fraud-related complaints into
Consumer Sentinel, a secure, online database available to hundreds of civil and
criminal law enforcement agencies in the U.S. and abroad.
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