How to Avoid Home Equity Scams

Homeowners not only have to worry about burglars breaking into their home, but also thieves breaking into their home equity. Home equity scammers attack through refinancing, because the process is easily manipulated. They target minority homeowners or those who have bad credit or low income. The scammers are hard to spot, often posing as legitimate lenders. The steps below will help you to avoid the scam and protect your equity.

Difficulty: Easy

Instructions

1. Read all of the paperwork before signing. Don't rely on the lender or realtor to protect your best interests in the transaction. They might not even see the switches. These include switching the interest rate from fixed to adjusted or adding tens of thousands of dollars to the loan (making your $100,000 loan a $120,000 loan). Switches exist solely to increase the lenders' profits. They can be avoided by reading the contracts thoroughly.

2. Shop around for your lender. Some lenders will hike up the fees on your loan, charging you for nonexistent services and even adding fraudulent debts to nonexistent companies. Others will sign up the homeowner for a loan that is more expensive than what they qualify for.

3. Keep your deeds under lock and key. Equity scams include those in which the homeowner loses the entire house. The lender will convince the homeowner to sign a quitclaim deed for various reasons, only to take the house after escrow. Avoid any lender who asks for a quitclaim deed to your home.

4. Research the process. The federal government has several publications (a few are listed in the resources section) that are designed to educate homeowners on home equity scams. The information is valuable--and free.

Resources

• Read a Federal Reserve publication on home mortgages.
• See FTC publications on home mortgages.