For many Missourians, home equity is one of their primary financial assets. Scam operators are all too aware of this and are willing to do whatever it takes to steal this equity.

Techniques used in home equity schemes vary but they typically involve the same key features. The first step is for the con artist to get the owner to sign a first, second or third mortgage.

Frequently this isn't difficult because all that's required is the home owner's signature. The loan documents, including the mortgage, are written in fine print and many home owners have no idea what they're signing.

The loan's terms are usually incredibly unfavorable to the consumer, with enormous up-front costs and high interest rates (sometimes exceeding 50 percent). They frequently are coupled with a balloon payment a few years down the road.

With a loan like this the unscrupulous lender can't lose. If the consumer pays off the note, the creditor makes a tremendous profit. If the consumer defaults, the lender forecloses and immediately recoups the loan amount plus points and fees paid up front, and gains the opportunity to buy the home at a fraction of its real value.

How to Spot Home Equity Loan Fraud

  • Be wary of any business that actively solicits you, particularly if the firm already seems to be aware of your financial plight.
  • Watch out for businesses that say they're not concerned with your ability to repay the loan. The ads may say "No income or credit check. If you have equity, we'll guarantee the loan." These catch phrases may be a tip-off to an unfair scheme.
  • Look for discrepancies between the promised or stated interest rate and the annual percentage rate (APR) figure required in all consumer loan contracts (Truth in Lending). If that figure is significantly higher than the rate stated in the contract, the loan contains hidden interest charges.
  • Determine who the lender is. A lender could be nothing more than a few individuals in for a quick score. Does the agent have an office? Is the company an old and established one with community ties?

How to Avoid Home Equity Loan Scams

  • Have a financial adviser such as an attorney or accountant review all papers before signing anything. Paperwork for a loan contract is often technical and unclear.
  • Try first to resolve the matter directly with the original creditors if you need cash to pay off creditors. Most creditors are more interested in negotiating an affordable repayment schedule than in taking expensive legal action.
  • Don't assume you will be denied a traditional (non-mortgage) loan. Apply first and find out.

Help for Fraud Victims

Any attempt to get out of a fraudulent loan contract must be done with an attorney's help. Also because lenders quickly sell these loans to other financial institutions on the secondary market, speed is of the essence to retain your full legal rights.

Under the Federal Truth in Lending Act, a home owner is entitled to rescind a mortgage contract for three business days after receiving certain disclosures concerning the loan. If the disclosures are not properly made or if notice of the right to rescind is not given, the borrower can rescind the contract for up to three years.