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Many Americans are counting on their home equity as one of their primary financial assets. Scam operators are all too aware of this and are willing to do whatever it takes to steal this equity.
Techniques used in home equity schemes vary but they typically
involve the same key features. The first step is for the con artist to get
the owner to sign a first, second or third mortgage.
Frequently this isn't difficult because all that's required is the home
owner's signature. The loan documents, including the mortgage, are
written in fine print and many home owners have no idea what they're
signing.
The loan's terms are usually incredibly unfavorable to the consumer,
with enormous up-front costs and high interest rates (sometimes
exceeding 50 percent). They frequently are coupled with a balloon
payment a few years down the road.
With a loan like this the unscrupulous lender can't lose. If the
consumer pays off the note, the creditor makes a tremendous profit. If
the consumer defaults, the lender forecloses and immediately recoups
the loan amount plus points and fees paid up front, and gains the
opportunity to buy the home at a fraction of its real value.
How to spot fraud
Be wary of any business that actively solicits you, particularly if the
firm already seems to be aware of your financial plight.
Watch out for businesses that say they're not concerned with your
ability to repay the loan. The ads may say "No income or credit
check. If you have equity, we'll guarantee the loan." These catch
phrases may be a tip-off to an unfair scheme.
Look for discrepancies between the promised or stated interest rate
and the annual percentage rate (APR) figure required in all consumer
loan contracts (Truth in Lending). If that figure is significantly higher
than the rate stated in the contract, the loan contains hidden interest
charges.
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