Equity scams can appear nice
Offering quick money to entice,
They seem too good to be true
While quietly separating money from you
Be careful and think twice. — Primm
With tighter controls in the home lending market a new breed of lender is coming out of the woodwork. To fill the lending gap for desperate, uninformed and gullible homeowners this new breed of lender appears to help. But instead of helping the homeowner out of a tough financial problem they often make it worse by piling on more debt and equity sucking fees.
Thousands of African American homeowners have fallen for the flowery words and quick cash promises of these legal sounding scam artists. The disastrous result runs from the inability to meet the monthly payment to signing away the equity in their homes.
While these scams have surfaced in most communities across the country, they are most prevalent in African American and Latino communities.
African American and Latino communities have less access to mainstream bank financing. In addition, traditionally these communities have less access to current information. For example, how to shop for the right loans, choosing the right lender and knowing lending terms.
The entry point for the current
scams often comes in the form of home improvement or repair financing. Often the victim is short on funds to get the needed repair or improvement done.
The Contractor or repairman happily offers high cost financing of the padded, exaggerated or inflated home repair or improvement. The homeowner often happy to receive the easy financing, tolerates the high cost repair or improvement.
The next step is to then stack a high interest, heavily restricted, heavily penalized loan on top of the high priced home repair or improvement.
The loan loaded with a high interest rate, excessive late fee penalties, punishing prepayment penalties and other administrative cost adds to the burden. In addition, binding arbitration (voluntarily giving up your right to sue them) is often a mandatory requirement.
What is binding arbitration? In a binding arbitration agreement you voluntarily waive your constitutional right to sue. Many Consumer advocacy groups have reported many African American homeowners did not know they were giving up that right when signing.
Tips to Protect Yourself From Home Equity Fraud:
1. Don’t even think about signing a blank or a partially filled contract. At least write N/A (Not Applicable) in the blanks if nothing else.
2. Read every clause carefully and have all your questions answered fully before signing. Pay special attention to terms you don’t understand.
3. Make sure to keep a clear legible copy for your records.
4. Remember when you sign a home improvement contract you have three business days to cancel the contract. Use these three days wisely to go over the contract or have a trusted adviser do it with you.