A common scam in the home loan market today is one known as “equity stripping.” In an equity stripping scam, a homeowner applies for either a home equity loan

 or a refinanced mortgage. An oh-so-friendly lender then encourages the homeowner to borrow more money than the homeowner can afford. Perhaps the lender will even “assist” by providing some not-quite-honest information on the loan application. The lender isn’t being helpful; they are interested in having the homeowner default on the loan. Should the homeowner default, the lender can take the home through foreclosure. Once that happens, the lender can sell the home and pocket the profits. This scam is quite often helped by another scam - that of appraisal fraud. Lenders have been pressuring home appraisers to deliver appraisals that meet “target” prices. If a lender is interested in lending based on a home value of $200,000, then the lender expects the home to appraise for at least that amount. Appraisers who fail to provide the “expected” values will find themselves with less and less work.

The equity stripping scam is one of many scams that are currently rampant throughout the lending industry. It can be avoided, however, if those seeking home equity loans would take the time to investigate their lenders and do a bit of research prior to signing their paperwork. Homeowners who are interested in refinancing their home should thoroughly check out their lenders before doing business with them. A good idea would be to talk to friends who have recently refinanced their homes or to contact the local Better Business Bureau or Chamber of Commerce to inquire as to whether they have had any complaints about that particular lender. Lenders who “cold call” or knock on your door out of the blue are probably best avoided.