Feb. 28, 2010

Home Equity Fraud: Explanation and Its Types

My second article for the real estate scam series is here. It deals with home equity fraud and two of its most common kinds. Let's start with saying that the majority of lenders are just alright and honestly want the best for you, willing to help and offer you a good deal. But we cannot forget about those who are trying to profit and are not quite sincere. You need to be cautious.

The two most common kinds of home equity fraud are home equity flipping and home equity stripping.

Home equity stripping:
It is taking money out of your house/condo and basically even taking your property away. Let's say you have trouble with paying your monthly loan payments. When being in such a situation, do not apply for additional credit. You really need to be careful. Some lenders may well tell you to lie and fake your personal information in order to qualify for a mortgage loan, you would not qualify for otherwise. The best decision is not to listen to such lender and start looking for a new one. In case you cannot afford a mortgage loan, do not obtain one. Remember that lying does not solve the situation, it might just complicate everything for you. You lender might take away your house and strip you of basically everything ("equity stripping") if you cannot pay your monthly mortgage loan payments.

One of the basic forms of home equity stripping is 'home equity lines of credit'. Your property serves as a guarantee in such a situation. In such cases, it is extremely important to know and truly realize how big loan you can afford and at what rate. Be sincere to yourself at least - if you lie to yourself, you can just lose your property.

Home equity flipping:
Home equity flipping occurs when a lender is trying to convince you flip your current loan, whether you currently have more convenient conditions or not, just for their own benefit (keep in mind that the lenders earn on all your transactions). Just do not let them persuade you that repeated refinancing is good for you. If you actually are well informed about your situation, it is a big plus. Make sure to read all the documents you get and use your head. When in doubt, talk to someone who is informed enough. Just ask for an advice if you need one.

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