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   Had Credit Troubles? Beware Home Equity Loan Fund
The recent boom in “sub-prime” lending by legitimate banks and credit grantors has made it possible for many people with past credit problems to get much-needed mortgages, auto loans, or credit cards. But some fraudulent lenders exploit the financial troubles of “sub-prime” borrowers, offering them expensive but easy credit that may well lead to the loss of their home.

Homeowners who are equity-rich but otherwise deeply in debt are particularly vulnerable to “mortgage flipping,” a process in which they are encouraged to refinance over and over, paying high fees with each loan, in order to consolidate other debts or expenses in home equity loans.

If you refinance but then continue acquiring new debt, you become increasingly vulnerable to this exploitation as your debt grows. Finally, adding insult to injury, you can lose your home through foreclosure to the very same lender who has charged you thousands of dollars in loan origination fees for the series of second mortgages.

Homeowners in foreclosure are also vulnerable. An unexpected or unsolicited offer of a second mortgage may sound like a miraculous gift to owners about to lose their home, but is probably a scam. Because they can legally acquire your home—and all of your equity in it—through foreclosure, they offer that second mortgage knowing full well that you’ll probably have trouble repaying it, especially with the high interest they’ll charge.

In both of these scenarios, the fraudulent lender counts on making money off of you and your home in multiple ways: first, through high loan fees and exorbitant interest rates, and second, through the acquisition of your home through foreclosure.

Your home equity is a valuable asset, and can be a useful financial resource if you use it carefully. A home equity loan from a legitimate, reliable lender may be just the thing to use for home improvements, to help pay for college, or even to consolidate credit card debt—as long as you don’t continue to charge more purchases and acquire more debt.

But if you’ve had credit problems or have burgeoning debts and receive an offer from an unknown lender for a home equity loan, steer clear. You’re better off simply paying back the debt you have—or even selling your home and keeping the equity you’ve built—than if you were to fall victim to these scams.

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