Definition
Equity stripping is any attempt to charge excessive fees to a homeowner or land owner in order to cash out the built-up value of the property.
Analysis
Equity stripping is often conducted by predatory lenders. They may encourage a homeowner with some equity to refinance a loan. Flipping may result in multiple loan refinancings with substantial fees and points paid out each time.
The result is that the homeowner may refinance an existing loan in order to cash out equity or to obtain a lower interest rate. The new loan may have a higher initial loan value, or it may extend the duration of repayment for many more years. Some predatory lenders even go as far as to include a balloon payment at the end of the mortgage term in order to force the homeowner to refinance yet again.
Other attempts to strip equity out of an existing property include foreclosure rescue scams. In many cases, a homeowner facing foreclosure may receive solicitations from companies that promise to pay off the mortgage and allow the homeowner to pay rent to stay in the home.
Some consumers are unaware that they are giving away their homes, losing all equity they built in the home. Other consumers find that the mortgage rescue company failed to pay off the mortgage or make any payments on the existing mortgage. They may end up being evicted from their homes with destroyed credit and no equity.
