Equity Stripping

Equity stripping is another problem with mortgages. There are many home equity stripping scams and you should learn what equity stripping is to not get caught in a home equity stripping scam.

Who are likely victims of equity stripping?

If you need money and you don't have much income, but you do own a home, even with a mortgage, and your home has equity in it, then you may fall for a equity stripping scam. A lender can call you or send a letter offering you a loan even though your income is not enough to keep up with the monthly payments.

When you have equity in your home, most lenders do not care about your monthly income because they know they can always tap into your equity. In equity stripping, the lender may encourage you to exaggerate your monthly income in order to get the bigger mortgage loan approved. What happens when you cannot pay your monthly mortgage payments with the inflated income you put on your mortgage application form which you do not have?

Equity stripping problem and foreclosure

Equity stripping happens more with subprime lenders, hard money lenders and less than grade A lenders. The lenders do not care how much money you make if you have equity because when you fall behind on your monthly mortgage payments, the lender will take your home in a foreclosure case. Some subprime lenders and hard money lenders set you up to default on your mortgage payments so that they will take your home in foreclosure. Once the lender forecloses on your home, you are stripped off your equity in your home.

Some private lenders, subprime lenders and hard money lenders are also in the real estate business and while most banks do not want to end up with real estate properties, these smaller lenders do. They set thier business up so that they will end up with real estate properties with equity in them and can sell for profit.