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Sometimes, taking out a loan against your home’s equity can be a good idea. Home equity borrowing should not be a problem as long as the loan is a fair one and you have the ability to repay the loan.
Predatory mortgage fraud is different:
Lenders seek you out and trick you into taking out a loan against your home which you cannot afford to repay. Most times, these loans have very high interest rates and steep fees. When you fall behind on your payments, the lender can take your home and all your equity through a legal process called foreclosure. The lender then owns your home. Once the damage is done, it is very hard to undo. Most people never get their homes back again.
Nationally, home repair and home equity fraud have stripped the value from the homes of an estimated 100,000 people in 29 states. In the entire country, the San Francisco Bay Area is one of the areas hardest hit by home equity fraud.
Real people, many of them senior citizens, have lost ownership of their homes and all their equity, with no hope of ever getting any of it back.
Anyone with equity in a home is a potential target. You could be next. Your home equity is just like money. Protect it!
If you are a homeowner or know someone who is, you should learn about predatory lending. Knowing what to look for and how to protect yourself can keep you or a loved one from losing a home.
Don’t take out a loan from an uninvited door-to-door contractor who appears at your home.
Instead: Many local government agencies have special programs to make it easy to repair housing. See if you qualify for one of these programs available in your area. See the Home Improvement Resource List, a separate Consumers Union publication.
Find your own contractor; don’t wait for one to come to you.
Shop for your own financing. You’ll probably get a better deal.
Steer clear of door-to-door salespersons who want to fix your home after a disaster such as an earthquake or flood.
Instead: Call the Federal Emergency Management Agency (FEMA) at 1(800)462-9029 for information about repairing and financing repairs to your home after a disaster.
If you are in foreclosure because you couldn’t pay your mortgage, someone you never heard of will offer you a new loan. Watch out.
Instead: Think about selling your home and keeping your equity rather than taking out another loan. See a credit counselor to talk about all of your alternatives.
Don’t put your other debts "on the house" through a bill consolidation plan. When you consolidate credit card debt or your car loan, for example, into a home equity loan, you put your home on the line for that debt. Once you put that debt "on your house," you can lose your home if you don’t make those payments.
Instead: Talk to a credit counselor. You can get help to work with your creditors to make payments more manageable, possibly without putting debt "on your house."
"No Credit? No Job? No Problem!"
"Don’t worry, you have plenty of equity in your home to qualify for a loan."
Walk away from anyone who says any of these things to you. You may be dealing with someone who will treat you unfairly. They don’t care if you can pay the loan. They know they can legally take your house through foreclosure if you don’t pay. In their eyes, the one thing that "qualifies" you for a loan is your inability to pay it.
Can I afford this loan? Just because a lender says you "qualify" doesn’t mean you are getting an affordable or fair loan. If you cannot afford the loan, you will lose your home.
What will I do if I lose my home? Most people have nowhere to go after they lose their homes. Remember that it is easier to learn how to protect your home now than it is to pick up the pieces after it’s gone. Take advantage of free, local loan counseling. See the Resources section at the end of this pamphlet.
Here’s How:
DO
Get the "big picture" on a loan. Look at more than the monthly payments. Make sure that a loan’s interest rate and fees are competitive and fair. Shop around with different lenders to compare.
Hang-up on unsolicited telephone callers. Toss-out mailers you receive from companies offering to arrange a home loan for you.
Steer clear of high-pressure sales tactics, such as claims that an offer is good only for a limited time.
Seek help from a trusted family member or friend who understands financial matters and can help you get free loan counseling.
Avoid loans that are set up as "interest only, non-amortizing or partially amortizing loans." With this type of loan, you still owe the money you borrowed after you make all the payments. You must make one large, final payment, known as a balloon payment. If you can’t make this payment, you may lose your home through foreclosure. You should avoid these loans at all cost.
Beware of lenders or contractors who try to trick you into signing away your home. Make sure that a "Contract for Home Improvement Services" is only that. Don’t give your house away by signing a "Deed of Trust" or a "Quitclaim Deed."
Think twice about taking out a loan against your home to give money to anyone,even a friend or family member. Consider such a request only if you can afford lose that money forever. Otherwise, you may lose your house if the other person doesn’t repay you in time.
Act fast if you were pressured into signing for a loan you didn’t really want or cannot afford. Federal law gives you three days to get out of a loan contract whenever your home is used as security for a home equity loan. You may cancel the loan for any reason, but only if you do it in writing within 3 days. This is known as the right of rescission. Contact an attorney immediately if you have any questions about whether your lender violated the law.
DON’T
Don’t sign anything related to a home loan without first obtaining independent, free advice from a nonprofit counseling agency. Check the Resources list below.
Don’t take the first loan offer that lands in your lap. Shop around! Some lenders charge more than others do.
Don’t trust door-to-door loan sellers. If you really need or want a home loan, you should make the first contact and carefully investigate all the possibilities before considering a loan.
Don’t take out a loan that is made solely on the value of your home, not on your ability to repay it. Your home equity alone does not give you the income you need to make the monthly payments.
Don’t borrow more money than you need. The bigger the loan, the more stake your lender will have in your home equity.
Don’t sign a form with incorrect information about yourself on it.
Don’t sign anything to do with your home that contains blank spaces. Once your signature is on a form, anyone can fill in those blank spaces with obligations that may be very different than the ones you have agreed to.
Don’t sign any forms written in a language you do not understand. You may be signing away your home without even realizing it! It’s okay to say "I don’t understand and I will not sign this."
Remember: if the offer is good today, it should be good tomorrow
If it sounds too good to be true,
it probably is.
Before you take out a home equity
loan, get pre-loan counseling for free:
San Francisco
Bar Association of San Francisco
Equity Fraud Hotline and lawyer referral (415) 989-1616
Consumer Credit Counseling Service
(415) 788-0288 or (800) 777-7526
Consumer Action (415) 777-9635
Alameda County
ECHO Housing - Oakland (510) 836-4826
ECHO Housing - Berkeley (510) 845-9030
Contra Costa County
ECHO Housing (925) 679-8023
San Mateo County
Consumer Credit Counseling Service
(800) 200-6444Legal Aid Society of San Mateo
(650) 558-0915ECHO Housing - Palo AltoBerkeley (650) 327-1718
(650) 853-1600
Santa Clara County
Consumer Credit Counseling Service
(800) 969-7526
If you feel you are the victim of home equity lending fraud, call one of the local agencies above. Then call the National Fraud Information Center. File a written complaint against the lender with the appropriate local law enforcement and state regulatory agencies.
National Fraud Information Center
(800) 876-7060
Fraud reports from consumers are sent within minutes to the appropriate law enforcement agency.
Law Enforcement:
San Francisco
Office of the District Attorney: (415) 553-1814
Alameda County
Office of the District Attorney: (510) 569-9281
Contra Costa County
Office of the District Attorney: (925) 646-4500
San Mateo County
Office of the District Attorney: (650) 363-4677
Santa Clara County
Office of the District Attorney,
Real Estate Fraud Division (408) 792-2880
State Regulatory Agencies:
Call each agency to see if the lender you are complaining about is licensed by that agency. Sometimes lenders are licensed by both agencies.
California Department of Real
Estate
185 Berry Street, Room 3400
San Francisco, CA 94107
(415) 904-5925
California Department of Corporations
3700 Wilshire Blvd., Suite 600
Los Angeles, CA 90010
(800) 347-6995 (toll free)
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