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Pop Quiz: Why are home equity loans such a great boon and such a
dangerous weapon?
Answer: Because they let you borrow against the "equity" of your home.
Most borrowers fail to realize that when trading their much beloved home for
cash, lenders can foreclose on their property in the case of default. Moreover,
because of fly-by-night operators who are ready to strip unsuspecting borrowers
of their most prized asset, it is doubly necessary that borrowers be familiar
with some frauds that could be perpetrated on them.
Stripping: The most common type of home equity loan fraud is "stripping,"
wherein lenders give loans to borrowers knowing fully that the borrower would be
unable to repay them, thus paving the way for these scamsters to foreclose on
your property and then sell it for a neat profit. The most common ruse for
making borrowers accept such high-cost debt is disguising them as home repair
loans. Many an unsuspecting borrower who has a lot of home equity but also piles
of credit card debt can easily be taken for a ride.
Flipping: This is an old favorite where a lender will agree to refinance
an existing mortgage rather than foreclosing. This is normally music to the ears
of a weary borrower, but what is not disclosed are the exorbitant fees that are
charged in refinancing which only increase the debt burden of the borrower.
Packing: In such a case the lender adds or "pads" extra charges into the
home equity loan in the shape of credit insurance, settlement charges and other
fringe charges which are of no real use to the borrower. The worst part is that
such charges do little benefit to the borrower but unnecessarily eat away at the
equity of a home.
However, some simple steps, such as checking a lender's credentials, shopping
around for better deals, and consulting experts, can make the task of applying
for a home equity loan that much easier. |
