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.

Part 1: Real Estate Scam

Real estate fraud is a quite usual thing. Lately, it has been gaining popularity. I'm pretty sure the vast majority of you have heard about that already. Still, I want to briefly summarize some of its types for you.

Foreclosure scam

Picture a situation that you have just purchased a new property, which you are really excited about. On the other hand, though, you have debt and big problems with paying it off. You might become kind of hopeless and thus ready for any help. Out of sudden, someone representing themselves as a mortgage consultant comes to your life, seemingly prepared to save the situation. They persuade you - the desperate homeowner in need, to transfer the ownership to them. From now on, your monthly mortgage payments will go straight to them. In spite of the ownership transfer to the "consultant", you still owe the monthly money to the institution lending you.

Mortgage Fraud

This is different than the foreclosure scam. It is a criminal act which aims to misrepresent personal info to be able to qualify for a mortgage loan. It involves identity theft, employment fraud, shot gunning, fraud for profit, income fraud, cash-back schemes, occupancy fraud or failure to disclose liabilities.

In identity theft, the scammer claims to be someone else (of course, without consent of this person) a uses their fake identity to obtain a loan, which they never pay off.

A situation when someone is officially borrowing for their primary place of stay, but actually use it for investing while occupying another residence, is called occupancy fraud.

Shotgunning occurs when numerous mortgage loans are obtained for the very same property, greatly exceeding its value.

Employment fraud is when a scammer claims to be in a higher position as they actually are, or they claim to own or to be self-employment in a non-existent company/institution just to prove they will be able to pay off their loan.

Income fraud is when a borrower lies about their income, claims to earn a lot more than they do in reality to be able to get a bigger loan.

Failure to disclose liabilities occurs when borrowers hide credit card debt or mortgage loans on other properties to decrease the monthly debt on the loan application.

Cash-back scheme means that a price of a home is significantly exaggerated (not in a legal way) to provide cash-back to the borrower or other transaction participants.

When the price of the home is understated or overstated on purpose, appraisal fraud occurs. To either get a bigger loan or to get a lower price on a foreclosed property.

Fraud for profit occurs when a group of people that cheats for financial gain. It also involves overstating the value of the house or condo.

This is just the first article from my real estate scam series. I am going to continue soon. Just leave a comment in case you are willing to share your experience with real estate fraud, I will be glad.

Property Investment Remain Popular in Canada

With the start of new year, more Canadians are primarily focusing on paying down their debts, a poll conducted for Manulife Financial in December 2009 claims. This outcome came after three quarters of increases of interest in investment.

The priority to pay down debts has gotten to its highest level in 5 years in December. Taking care of their consumer credit is now the main priority of 28 percent of 1000 polled Canadians. It was 20 percent two years ago and 24 percent last year. Paying down one's own mortgage is the second top priority. 14 percent of respondents share this opinion, in comparison with 11 percent from a year ago. The thrid most common answer of Canadians was that they are saving for retirement, 11 percent of Canadians are of this opinion - last year it was 14 percent.

Concerning overall financial state of Canadians, 46 percent of respondents think their financial situation is better now than it was 5 years ago. Last year, the number of Canadians who share this view was 5 percent higher and it was 14 percent higher two years ago. 28 percent of polled Canadians believe that their financial situation 5 years back was just the same as it is today, and 25 percent of Canadians consider their current situation to be worse than it was in late 2004.

As for Manulife Sentiment Index, after three quarterly gains in a row, it has decreased in December from 3 months earlier by 7 points to +18. The main focus of the index are the feelings of Canadians about investing in few categories.

It is mainly based on these categories:

-Investing in their homes is the top choice of Canadians. Still, in December 2009, the index for investing in property has declined by 5 points, to +52.
-Investment in real estate decreased by 13 points in December, after quite a few gains this year. Its level, +27 is still higher than it was last year, when it actually went to the negative territory.
-The current level of balanced funds is +16, and they increased by 2 points.
-Cash and fixed income investments decreased by 8 points to + 10 in December.
-The current level of equities is -5, as they have decreased by 6 points.

I'm quite pleased to see Canadians still find investing in their homes this important. And it is also great to know that our country has responsible citizens, the top priority of whom is paying their debt. I'm quite curious whether the repeated warnings by the Bank of Canada's representatives has influenced it somehow.