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Beware! Scams
By Lenders
Here are some of the most common ways dishonest
lenders scam homeowners and prospective homeowners:
1. 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.
2. 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.
3. 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.
4. 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.
5. 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.
6. 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.
Protecting Yourself, Do NOT Do The Following:
- Agree to a home equity loan if you can't
afford the monthly payments.
- Fold under pressure to sign documents.
- Sign documents you haven't read or that
have blank spaces to be filled in after you have signed.
- 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.
- Allow the promise of extra cash or lower
monthly payments to cloud your judgment about whether the
cost is worth it.
- Deed your property to anyone. Instead, talk
with an attorney or someone else you trust.
ALWAYS Do The Following:
- Demand an explanation of any cost, term
or condition you don't understand. Federal law (The Truth-in-Lending
Act) is very clear about what information must be provided
in writing when you apply for a loan and before you sign
any agreement.
- Shop around if you want credit insurance.
Buying it from a lender may not be a good deal.
- Keep meticulous records of what you have
paid, billing statements and canceled checks.
- Challenge charges you think are inaccurate.
- Check contractors' references before having
work done on your home, and get more than one estimate.
- Keep a copy of everything thing you sign.
- 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.
If You've Been Taken
Advantage
Anyone victimized by fraudulent lenders or contractors
should:
- Contact an attorney immediately.
- File a complaint with the Federal Trade Commission's
Consumer Response Center. The FTC cannot resolve individual
complaints, but it can take action against a company if
a pattern of violations is found.
Contact the FTC via the Internet;
by calling toll-free: 877-FTC-HELP (382-4357); TDD (for hearing
impaired) 202-326-2502; or writing:
Consumer Response Center
Federal Trade Commission
600 Pennsylvania Ave. NW
Washington, D.C. 20580
TIP: Make your life
easy and choose a
local broker.
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