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Protect Yourself Against Home Equity Fraud

By K-Staff

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For most people, their home is their most valuable possession, and as they pay down their mortgage, the equity they build becomes their largest store of wealth. Home equity loans and lines of credit are useful tools to access those funds for home renovations and many other of life’s needs – but they can also be attractive targets for fraudsters and scammers.

In the wrong hands, your personal and property information could be accessed for fraud – but knowing what types of fraud to look out for and what steps you can take to protect yourself can keep your home equity secure.

Common Types of Home Equity Fraud

Title Fraud: This is when criminals fake your name or make illegal changes to your home’s ownership to transfer the title to themselves, with which they can take out loans using your property as collateral, or even sell your home to another buyer without your knowledge.

How can you protect yourself?

Check your home’s title at your county recorder’s office regularly, and make sure that no one has made unauthorized transactions in your name. Title insurance can also protect you against title disputes and fraudulent activity.

Home Equity Loan Scams: Scammers may take the guise of lenders, offering fast home equity loans with low interest rates or no fees. Once they get your application information, they disappear as quickly as they came, or they may charge exorbitant fees for services rendered.

How can you protect yourself?

Verify all lenders’ credentials before accepting offers – check for official licensing and look for online reviews. If a lender asks for fees or personal information before processing your loan application, it is a red flag for a scam. Finally, talk to financial advisors before getting a home equity loan so you understand what you’re getting into.

Home Equity Conversion Mortgage (HECM) Scams: More commonly known as reverse mortgages, these programs are generally targeted at seniors, and scammers try to take advantage of those who don’t understand finances, leading to possible loss of equity or payment of exorbitant fees.

How can you protect yourself?

Make sure you’re fully educated about reverse mortgages and their impact on your home equity before you apply for one – seek professional guidance from a HUD-approved counselor, and watch out for hidden costs and unnecessary charges.

Home Equity Buyout Scams: Scammers may offer to buy out equity for a lump sum, offering cash in exchange, or they may try to convince you to sell your property for lower than market price. After the transaction is completed, they disappear, leaving you with no money and little control over your property.

How can you protect yourself?

Always conduct a thorough background check on anyone offering to purchase your equity or property. Use a trusted real estate agent or real estate attorney before selling any portion of your home’s equity, and don’t settle for the first buyout offer you receive – compare offers from other reputable buyers.

Unsolicited Loan Modification Scams: These scams target homeowners who may be struggling with mortgage payments by offering loan modifications to help reduce their monthly payments. The scammers may ask for exorbitant fees before services are rendered, and their promised negotiations with your lender don’t product results.

How can you protect yourself?

If you need to modify your existing loan, contact your lender directly. Avoid third-party companies that offer unsolicited loan modifications – and remember, legitimate loan modification services don’t require upfront payment.

Equity Stripping: Scammers pressure homeowners into taking out home equity loans or lines of credit they can’t afford, and once the homeowner defaults on payments, the scammer takes the opportunity to acquire their home at below market price.

How can you protect yourself?

Research any organization you are using to obtain a home equity loan, and consult a HUD-approved housing counselor if you need further advice. Avoid unsolicited offers, and never rush into any loan agreement – carefully read all loan documents and make sure you understand the proposition.

Home Improvement Scams: A contractor may provide a high-priced quote for home improvement services – if the homeowner can’t afford it, they will suggest a specific lender to borrow against their home’s equity. Once the loan is secured and funds are disbursed to the contractor, the contractor disappears without completing the work.

How can you protect yourself?

Research all contractors you plan on using for home improvement projects through the Better Business Bureau, and get quotes from multiple contractors to avoid overpaying for projects. Once you’ve selected your contractor, get all agreements in writing before proceeding.

Taking Precautions

Regularly monitor your accounts

It’s easy to monitor your accounts with Digital Banking – checking your balances and statements on a regular basis will help you catch unauthorized transactions quickly and minimize damage in the event your information has been compromised.

Keep all personal and financial information secure and private

Shred any financial documents that may have personal information before throwing them away. Keep important personal and financial documents – including checks – in secure places. For your digital accounts, use strong, unique passphrases and change them on a regular basis, as well as multi-factor authentication and VPNs (Virtual Private Networks) to increase your accounts’ security.

Verify account contact information

Make sure your account contact information is up to date – if your lender doesn’t know how to reach you when they have a question or there is a suspicious transaction, it could lead to trouble.

Double-check all correspondence

Be wary of any message that asks for your personal information or directs you to a website to provide it. If you are ever in doubt about a message you receive, reach out to your lender through a verified contact channel, such as a phone number listed on their website – not the number provided in the message.

Keep an eye on your mailbox

If you are receiving unfamiliar bills or notices about loans you never applied for – or if you are missing mail you would normally expect about your outstanding loans – it may be a signal of identity theft. Review your credit report to spot unauthorized activity and report to lenders as soon as possible.

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