It may be tempting to get a home equity loan to pay off some bills, do some remodeling or just to have some extra cash in your account. Many times, a home equity loan is the ideal way to fund these situations. However, you have to be careful because many people and companies are out to scam homeowners out of thousands of dollars. Here are some scams that have been going around for years that you should be aware of so you do not fall victim to them.
Balloon payments are not in themselves a scam, but the way a mortgage company charges you a balloon payment may be. There are several mortgage companies out there who claim they can "save you" from foreclosure. The way they do this is to refinance your home with lower payments each month that you can afford to pay. However, what they don't tell you (except in the very very fine print) is that you will be responsible for a balloon payment at the end of the loan term. This balloon payment will include all the money that you owe from paying the reduced payments over the years. If you cannot pay this payment, you will be facing foreclosure once again.
Stripping is when a shady lender will tell you to "pad your income" when you are applying for a mortgage loan. These lenders are not concerned about you paying your mortgage. They couldn't care less about your ability to pay the monthly payments because they will just foreclose on your property. This goes for home equity loans, too. If you become a victim of this type of scam, your home equity can essentially be "stripped" and you will be left with nothing after years of trying to build it up.
Relinquishing the Deed to Your Home
If you are facing foreclosure and seeking help through mortgage lenders, some shady ones may tell you to simply sign the deed to your home over to them. This will be, according to them, just for a short period of time to help prevent having your home foreclosed upon. Unfortunately, once you sign the deed over, you may never get the home equity loan you were expecting from the company. What's even more is that the mortgage company may have borrowed against your home or sold it to somebody and you have no recourse because your name is no longer on the deed. You may be charged rent instead of mortgage payments and all of your equity is ruined. The company that now holds the deed may even have the legal right to kick you out of your own home.
In essence, keep these tips in mind to prevent yourself from falling prey to these scams: only agree to a loan if you have a stable income and you can afford the payments, read anything before signing your name to it and never cave to pressure from a company that wants your home's deed. Check with the Better Business Bureau and other resources before working with a home equity mortgage company to find out if they are reputable or if they have complaints filed against them.