Equity Stripping Mortgage Scam

[Glenn Dorsey]

A friend of mine at work got mixed up in a mortgage scam called equity stripping. Long story short, he was behind on his home loan payments, a little desperate, and reaching out for help. That made him the perfect target for these mortgage con artists that prey on home owners that are in distress. I never really realized that a "dark side" of the mortgage industry exists, but it does. I don't want to use my friend's situation for details of this equity stripping mortgage scam, but I found another example online to illustrate what happens.

A very popular mortgage scam is known as equity stripping, or a bailout. This one takes place when you have a lot of equity in your home. For example, if you still owe the bank $50,000, but the house is worth $200,00, you have $150,000 in equity (the difference between the value of the property and the amount owed on it). When you have a lot of equity, and you are desperate, you become a target for equity stripping where the mortgage con artist literally "strips" your equity from you.

I read about one example of equity stripping where a couple was talked into filing for bankruptcy and signing over their home to a man that said he would let them make rent payments to him. He promised to apply their rent payments to the mortgage so that the couple could get their house back. Instead, the mortgage con kept all of their rent payments for himself, sold the house, and ended up with over $50,000 after paying off all of the couple's creditors. The con basically talked the desperate couple into giving him their home and then selling it to strip all of their equity out of the property. I know this mortgage scam sounds like something that would never happen to a smart person with some basic common sense, but bad things tend to happen to people who are reaching out for help.

You can avoid this equity stripping mortgage scam by understanding how it works. Recognizing the pattern here will help you figure out if it is happening to you. Instead of trusting anyone by signing over your home to them, consider consulting with a trusted real estate attorney that may be able to help you find some honest options such as mortgage refinancing, a loan modification, or perhaps selling your home on the market to pay off the mortgage and pocket the equity for yourself.

Are you aware of any other mortgage scams that we should be watching out for?