Perfectly Legal but a Rip-Off Anyway : Unethical firms offering home equity loans often target the elderly
Despite recent toughening of real estate laws, a new report from Consumers Union documents that elderly homeowners in particular continue to be victimized through legal but unethical activities.
The Consumers Union report, “Dirty Deeds: Abuses and Fraudulent Market Practices in California’s Home Equity Market,” focuses on scams in Los Angeles, San Francisco and Oakland, the three cities where the problem is most severe. The particulars vary but generally involve the duping of older homeowners into signing over the equity in their homes for high-interest loans. The initial low monthly payments quickly boomerang and homeowners find themselves facing high balloon payments or the loss of their homes.
The most common equity scams are home improvement loans (a particular problem since the Northridge earthquake), foreclosure rescue schemes, bill consolidation and home refinancing offers. Victims are often solicited by door-to-door salesmen or at their churches. Pressure tactics are common.
The cumulative scope of these scams is breathtaking; Consumers Union estimates that equity loan scams have stripped the value from the homes of an estimated 100,000 people in 20 states. Victims in Los Angeles County alone lost as much as $183 million during 1993 and 1994. Ironically, this cruel exploitation is, for the most part, perfectly legal.
California law has cracked down on real estate abuse but should get tougher still. A bill signed earlier this month by Gov. Pete Wilson extends the life of the special division within the Los Angeles district attorney’s office that investigates 60,000 cases of alleged loan fraud each year. The governor also signed a bill making California the first state to require all property deed signers to leave a thumbprint in the notary public’s journal; this law should protect homeowners from losing their home to title thieves who record forged property deeds.
Consumers Union suggests other sensible changes to curb loan scams. It urges the consolidation of all state regulations dealing with home equity loans under one agency, the Department of Corporations. But that agency is already stretched thin. If it is to be effective, its budget and manpower must be strengthened. Proposals to prohibit the simultaneous solicitation for loans and improvement services, to bolster usury laws and to prohibit balloon payments on home equity loans also deserve consideration.
Of course, the best protection is for homeowners to just say no. Beware of unsolicited salesmen or repair contractors. If the deal seems too good to be true, the monthly payments unusually low or the documents confusing, don’t sign.
