Equity stripping, or equity skimming, is a type of real estate fraud scheme. It typically involves a person gaining access to remaining equity in a home that is up for foreclosure. Thus, equity stripping fraudsters often target persons who have defaulted on their mortgage loan and are in a somewhat desperate situation with their property. This usually includes younger, first-time buyers, as well as elderly homeowners.
Equity stripping is often classified with other types of schemes, including predatory lending and foreclosure rescue schemes. It can also refer to a different situation in which the equity in an asset is blocked or encumbered, thereby preventing creditors from being able to reach the equity.
There are several noticeable steps that occur in nearly every equity stripping case. These are:
- Foreclosure: First, the homeowner defaults on their mortgage and is in danger of losing their home to a foreclosure proceeding.
- Soliciting: Here, the fraudster (called the “rescue artist”) contacts the homeowner. They often learn of their foreclosure status through foreclosure listings, or sometimes through illegal or unethical means.
- Acquisition: The rescue artist convinces the homeowner to transfer to title to them so that they can avoid foreclosure. In some cases, the rescue artist may have the homeowner live in the home as a tenant. The rescue artist acquires the deed and inherits the home’s equity.
- Negative Results: At some point the fraudster either abandons the situation or evicts the tenant, making off with the equity amounts and leaving the previous owner to deal with the foreclosure situation.
In most equity stripping cases, the previous owner loses title because the fraudster begins charging them rent that is very high. The tenant is often reluctant to leave the situation because they still have hopes of reclaiming their property. In the long run, the rescue artist makes off with the remaining equity.
Equity stripping can result in some severe legal penalties. In most cases, the borrower will file a civil lawsuit against the mortgage company or individual adjuster for damages. This can help the person to recover losses caused by the equity stripping violations. Here, the damages may cover costs like the lost equity, legal fees and other losses.
Equity stripping can leave a property owner in a very difficult place. You may wish to hire a qualified real estate lawyer if you have any issues regarding foreclosure, home equity, and other property matters. Your attorney can ensure that your interests are being protected. If you need to file a legal claim, your lawyer will be able to represent you in a court of law as the matters are litigated.