What is equity stripping?

Equity stripping is a type of predatory lending brought on by the housing “boom.” As housing prices skyrocket, many homeowners don’t realize they are living in a goldmine. At the same time, property taxes are skyrocketing, forcing many homeowners into default. Those living on fixed incomes are particularly vulnerable.

This combination means unscrupulous individuals have a myriad of individuals to choose from once their homes enter foreclosure.

The scam

Equity strippers cruise foreclosure listings to find their victims. They send out mass mailings with benevolent-sounding names like “Home Savers, Inc.” and claim to be able to “save your home.” Thinking this is a good deal, some homeowners call in.

When a home is foreclosed, there is first a redemption period during which the homeowner may “redeem” their loan, by paying it off, usually by refinancing. So a homeowner may owe $80,000, for example. The stripper, in one way or another, satisfies the loan and–usually–takes the title. They may offer to lease the home back to the homeowner, or simply take payments on the new loan. In every case, the payments are higher than they were, which is exactly what the stripper wants, and the stripper then forecloses.

The homeowner could have sold the house for probably double or triple what the stripper paid. But the stripper walks off with the profit after the foreclosure sale, getting the equity that should have gone to the homeowner.

What to do

Equity stripping is illegal. If you or someone you know thought they were saving their home, but are facing foreclosure instead, call an attorney immediately. Various Minnesota legal aid offices also have equity stripping divisions and can help. Attorneys can help keep you in your home, obtain a refinance at acceptable rates, and even save the lost equity. Other remedies may also be possible, and Minnesota law, at least, may provide for criminal sanctions.

More information on equity stripping can easily be found on Google.