Equity skimming is a type of real estate fraud in which a person or group of people purchase a property, usually at a low price, and then collect rent on the property without making any improvements or repairs or paying the mortgage or property taxes.
The goal is to collect as much rent as possible before the property is foreclosed upon and then disappear with the proceeds, leaving the lender or the future purchaser with a property that is in poor condition and has a large outstanding mortgage.
Is this the Same as “Equity Stripping?”
No, equity skimming and equity stripping are not the same things.
Equity skimming is a type of mortgage fraud in which the perpetrator obtains a mortgage loan in the name of the property owner, but does not intend to make payments on the loan. Instead, the perpetrator rents out the property, collects the rent and uses it for personal gain, and eventually allows the property to go into foreclosure.
Equity stripping, on the other hand, is a tactic used to strip equity from a property. This is often done by taking out a series of loans against the property, using the proceeds for personal gain, and leaving the borrower with a property that is worth less than the outstanding loans.
Both of these practices are illegal and can result in severe consequences for the perpetrator.
Both equity skimming and equity stripping involve the use of mortgages and the abuse of the property owner’s equity in the property.
Both practices are illegal and can result in severe consequences for the perpetrator. It is important for property owners to be aware of these tactics and to be careful when entering into any agreements involving mortgages or loans against their property.
What Are Some Examples of Equity Skimming?
There are several examples of equity skimming, but some of the most common include the following:
- Renting out a property while not making mortgage payments: A perpetrator obtains a mortgage loan in the name of the property owner but does not make payments on the loan. Instead, the perpetrator rents out the property and collects the rent, using it for personal gain. The property eventually goes into foreclosure, and the property owner is left without a home and with a damaged credit score.
- Faking a sale: A perpetrator convinces the property owner to sell their property to them, but instead of transferring the property to the perpetrator’s name, they continue to collect rent from the tenant and eventually allow the property to go into foreclosure.
- Faking a refinance: A perpetrator convinces the property owner to refinance their property, but instead of using the proceeds to pay off the original mortgage, they pocket the money and allow the property to go into foreclosure.
- Faking a lease purchase: A perpetrator convinces the property owner to lease their property to them with an option to purchase. The perpetrator rents the property to the tenant and collects the rent but does not make payments on the mortgage and eventually allows the property to go into foreclosure.
It’s important to note that these actions are illegal and can have severe consequences for the perpetrator. Property owners should be cautious when entering into any agreements involving mortgages or loans against their property and seek legal advice before signing any documents.
Foreclosure rescue scams involve scam artists who target homeowners who are facing foreclosure and promise to help them save their homes but instead take their money and leave the homeowners in a worse situation.
Home improvement scams involve contractors who take a deposit for home repairs or renovations and then either never complete the work or do shoddy work that doesn’t meet the agreed-upon specifications.
All of these types of scams take advantage of vulnerable homeowners and can result in financial loss and potential loss of their homes.
What Are the Consequences of Equity Skimming Schemes?
The consequences of equity skimming schemes can be severe for both the homeowner and the scammer.
For the homeowner, the consequences can include the following:
- Loss of the home and equity in the property
- Difficulty in obtaining credit or finding a new place to live
- Potential legal problems if they are unable to make mortgage payments or are evicted from the property
For the scammer, the consequences can include the following:
- Criminal charges, such as grand larceny, fraud, or embezzlement
- Civil lawsuits from the homeowners or other affected parties
- Restitution or fines
Additionally, equity skimming can also affect the legitimate mortgage holder and can lead to foreclosures and loss of the property.
It’s important to note that equity skimming is illegal, and homeowners who suspect they are being scammed should contact the authorities immediately. They should also seek legal advice from an attorney who is experienced in real estate law.
An equity skimming scheme can severely affect the ability to convey title to a property.
In an equity skimming scheme, the scammer convinces the homeowner to transfer the title of the property to them, usually through a lease option or a quitclaim deed and then rents the property out for a profit without making any mortgage payments.
When the title is transferred to the scammer, it creates a cloud on the title of the property. This means that there are legal issues or questions about the validity of the title that need to be resolved before the property can be sold or transferred again.
As a result, the homeowner may have difficulty in conveying the property to another person. They might find it hard to sell or refinance the property because the title is clouded. The mortgage holder may have difficulty in foreclosing because the title is clouded, which could lead to the property remaining vacant and abandoned.
The homeowner may also have difficulty in proving ownership of the property, which can make it difficult for them to get a loan or refinance the property. The scammer can also be charged with creating false documents, which can make it difficult to prove the ownership of the property.
Contact a local real estate lawyer in your area if you have any questions about the effects and consequences of equity skimming schemes or violations. Your attorney can guide you through the legal process to obtain the appropriate remedy.
Should I Hire a Mortgage Attorney for Help with Equity Skimming Scams?
If you suspect that you are a victim of an equity skimming scam, it may be beneficial to hire a mortgage attorney for help. A mortgage attorney can provide you with legal advice and representation in court and can help you take action to regain control of your property and protect your rights.