Storm Brings Home Equity Loan Scams

Homeowners who have suffered damage from Hurricane Sandy need to beware of scammers who often crop up in the wake of disasters, the Consumer Financial Protection Bureau (CFPB) is warning.

Of particular concern are what the CFPB describes as “home improvement loan scams” in which an unscrupulous contractor tricks an unsuspecting homeowner into signing papers for a home equity loan with an uncommonly high interest rate and fees.

The CFPB says the scam often occurs when homeowners get an unsolicited call or visit from a contractor offering to do work at what appears to be a reasonable cost. As part of the deal, the contractor offers to arrange financing through a lender he does business with.

The contractor begins work before financing is arranged, then at some point the homeowner is presented with a large stack of papers to sign. Some parts of the papers may not be filled in or the homeowner may be pressured to sign them without looking at them closely, often by the contractor threatening to leave the work uncompleted.

In the CFPB’s scenario, it later turns out that the homeowner had signed papers for a home equity loan with high costs. In addition, the contractor may not complete the work adequately, since he is paid by the lender and not the homeowner.

The CFPB urges that homeowners be wary of contractors who seek to steer homeowners to particular lenders or who try to act as an intermediary between a homeowner and lender. Other warning signs include being asked to provide personal financial information before starting repairs (often to “speed up the process”) or being pressured to sign documents without reading them.

To protect themselves, homeowners are cautioned to do their own research before borrowing any money for home repairs, to get competing quotes from lenders not affiliated with the contractor and to generally be wary of unsolicited repair offers.

First published at: http://www.mortgageloan.com/storm-brings-home-equity-loan-scams-9281