Equity skimming is a type of real estate fraud scheme that became popular in the early 2000s following the mortgage crisis. It basically involves a person or investor gaining title to another person’s home, then refinancing the home and taking out all the equity in the property. This is often called “equity skipping” or “foreclosure rescue scam.”

Examples of Equity Skimming

Equity involves a home owner who has defaulted on their mortgage and whose property may be facing foreclosure. Another party, who is usually an investor, comes in and proposes to help the homeowner out by buying the home before it gets foreclosed. The investor may ask the homeowner to convey title to them as security on a new loan. The investor “promises” that they will return the property to them after everything has cleared.

However, what usually happens is that the investor will get the title then refinance the property and take out all the equity. They may simply “skip out” or leave the situation, often physically leaving the town or county. The original homeowner is then left with a new foreclosure situation on their hands.

In other examples, the new investor may keep the original homeowner as a tenant in the home. They may then eventually evict the original owner if the original owner does not pay and then gain access to title in that way. Here, the investor may charge much higher rent, forcing the original owner to go into more debt, and thus “skimming” off equity from the home.

There are many other variations to these schemes. Many of them have to do with the way that the “investor” obtains title or in the way that they gain access to the home equity.

Consequences of Equity Skimming

Equity skimming can lead to legal consequences, which may include:

  • Civil damages for losses caused to the homeowner
  • Criminal fraud charges
  • Various other consequences depending on the number of actors involved (for instance, conspiracy charges may lie for equity skimming rings involving many people or entire companies)

Also, equity skimming cases are sometimes intertwined with other types of scams, such as home improvement scams, second mortgage loan fraud, and other issues. These can result in compound legal consequences depending on the facts of the case.

Should I Hire a Mortgage Attorney?

Equity skimming can place a home owner in a very precarious situation. You may need to hire a mortgage attorney if you believe that you have been affected by equity skimming. Your attorney can help you file a claim in court and can help determine your rights are in terms of legal recovery. Also, you can hire a lawyer early on in case you need legal guidance in relation to foreclosure or mortgage default situations.