You could lose your home, the equity you have built in your home, and your money if you are pressured to take out a loan by unscrupulous lenders or mortgage brokers who offer you a high-cost loan you cannot afford. Mortgage lenders and mortgage brokers may mislead you into signing a loan that is difficult for you to pay knowing you have equity in your home. Certain lenders and brokers target homeowners who are elderly or who are low income or who have credit problems and then try to take advantage of them by using deceptive practices. You may even be talking to a broker who will charge you extra to find a loan when you think you are working directly with a lender. The Federal Trade Commission cautions all homeowners to be on the lookout for:
Home Equity Scams
• Equity Stripping: The lender gives you a loan, based on the equity in your home, not on your ability to repay.
• Loan Flipping: The lender encourages you to repeatedly refinance the loan either to catch up missed payments or pay off other bills. Every time you refinance the loan, new fees and other charges will be added to the amount you owe.
• Credit Insurance Packing: The lender adds credit life or disability insurance premiums to your loan, which you may not need. This insurance is expensive and may not be necessary. It is also sold without regard to the borrowers’ ability to benefit from the coverage. No lender may require credit insurance as a condition of making a home mortgage loan.
• Bait and Switch: The lender offers one set of loan terms when you apply, and then when you show up at the loan closing, the interest rate is higher or the terms have changed, i.e. a fixed rate loan is now an adjustable rate loan. You feel pressure to sign the new loan because you do not know of the changes until the last minute when you feel you have no choice but to go through with the loan.
• Deceptive Loan Servicing: Loan servicers are the companies that collect your payments. You must keep track of your payments because servicer may not provide you with accurate or complete account statements and payoff figures. These companies also may receive your payment on time and hold it to make it seem late, or adds expensive insurance premiums to your payment claiming you did not keep up your own homeowner’s insurance.
Some of these practices violate federal consumer protection laws requiring certain disclosures about loan terms, prohibiting discrimination based on age, gender, marital status, race or national origin, and governing debt collection activities. For example, you may have the right to “rescind” your loan under certain circumstances if proper disclosures are not provided before you sign the loan and you are entitled to an accounting to make sure your loan is being properly collected and you can check to see if the servicer has properly kept track of how much you have paid and how much more you owe.
You may also have additional rights under state law that would allow you to bring a lawsuit against your lender or the company collecting your loan there were problems with the loan process or in the collection of the loan.