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Monday, July 23, 2007

How To Avoid Home Equity Scams



Home Equity Scams

How to avoid them



Loan flipping
This is where a lender encourages you to refinance your loan repeatedly. In refinancing, the lender charges high fees. In most loan-flipping cases, each successive loan is for a higher amount as fees are rolled into the loan amounts.
A resident of New York City getting a $200,000 mortgage would pay an average $3,830 in origination, title and closing costs, according to Bankrate's survey of lenders.

With each flip of the loan, you increase your debt. If you get in over your head, you could lose your home.

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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 will be added to the cost of the loan.

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.

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Deceptive loan servicing
The loan servicer 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 servicer starts sending letters saying your payments are going to be higher than expected.

The servicer might tack on taxes and insurance you had already arranged to pay yourself, late fees even though your payments have been on time or legal fees you don't understand. Amid the confusion, you are paying more than you owe.

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The home improvement loan
A contractor knocks on your door and offers to put on a new roof or resurface the driveway. The contractor offers to arrange financing. 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.

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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, calling it a temporary measure to stave off foreclosure.

Once the lender has the deed to your property, he treats it as his own, borrowing against the equity or selling the house. You've become the tenant, with the lender demanding "rent." If the rent is late, the lender can evict you.

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