Avoiding Scams in Real Estate

HOME EQUITY SCAMS

You could lose your home and your money if you borrow from unscrupulous lenders who offer you a high-cost loan based on the equity you have in your home. Certain lenders target homeowners who are elderly or who have low incomes or credit problems—and then try to take advantage of them by using deceptive practices. The Federal Trade Commission cautions all homeowners to be on the lookout for:

Equity Stripping: The lender gives you a loan, based on the equity in your home, not on your ability to repay based on your income. If you can’t make the payments, you could end up losing your home.

Loan Flipping: The lender encourages you to repeatedly refinance the loan and often, to borrow more money. Each time you refinance, you pay additional fees and interest points. That only serves to increase your debt.

Credit Insurance Packing: The lender adds credit insurance to your loan, which you may not need.

Bait and Switch: The lender offers one set of loan terms when you apply, then pressures you to accept higher charges when you sign to complete the transaction.

Deceptive Loan Servicing: The lender doesn’t provide you with accurate or complete account statements and payoff figures. That makes it almost impossible for you to determine how much you have paid or how much you owe. You may pay more than you owe.

Some of these practices violate federal credit laws dealing with disclosures about loan terms, discrimination based on age, gender, marital status, race, or national origin; and debt collection.

You also may have additional rights under state law that would allow you to bring a law suit.

The FTC suggests if you’re thinking about using your home as collateral for a loan, be careful. Unless you can make the loan payments out of current income, you could lose your home as well as the equity you’ve already built up. Some additional tips to remember:

The lure of extra money or the chance to reduce monthly credit payments can be very costly in the long run. High interest rates and other credit costs could get you in over your head.

Credit insurance may not be a good deal from a lender. If you want the added security of credit insurance, shop around.

Don’t sign a loan agreement if the terms are not what you were given when you applied.

Ask for an explanation of any dollar amount, term, or condition that you don’t understand. Federal law is very clear about what credit and loan term information must be provided in writing when you apply for a loan and before you sign any agreement.

In addition, shop around for the best loan terms and interest rates. Contact lending institutions, such as banks and credit unions, and consult a legal or financial advisor, or someone you can trust before you make any loan decisions. Or contact your local Fair Housing Office, legal aid, or senior services organization for information and help.

For more information on loan and credit issues contact:

The Consumer Response Center
Federal Trade Commission
Washington, D.C. 20580


TIMESHARE RESALE SCAMS

If you own a vacation timeshare — the use of a vacation home for a limited, pre-planned time — be cautious about people offering to help you resell it for a fee. Most of these sales programs are bogus. The market for resales is poor. One recent survey found that only 3.3 percent of owners reported reselling their timeshares during the last 20 years. Still, desperate to sell, many owners have been taken in by timeshare resale scams.

The Resale Scam

Unscrupulous companies may contact you by phone or mail. Salespeople are likely to tell you the market for resales is "hot" and that their company has a high success rate in reselling units. They may claim to have extensive lists of sales agents and potential buyers. For an advance "listing" fee, often $300 to $500, some salespeople promise to sell your timeshare for a price equal to or greater than your purchase price. To further entice you, they may offer a money-back guarantee or a $1,000 government bond if they can't sell your timeshare within a year. Others offer to purchase your timeshare for 80-90 percent of its appraised value if they don't sell it within a specified time.

In reality, the market for resales may vary considerably, depending on the location and time of year. The lists of sales agents and buyers may consist of people who have never heard of the company or have no interest in buying a timeshare. It may be unlikely that the company can sell the timeshare at all, let alone at a price equal to or greater than your original purchase price. In addition, many consumers whose timeshares don't sell after a year may be presented with a government bond worth only $60 or $70 or told there's no refund on their listing fee.

If You Want to Sell

If you want to resell your timeshare and are approached by a company offering to help, consider taking these precautions:

• Don't agree to anything over the phone until you've had a chance to check out the company.
• Ask the salesperson to send you written materials.
• Find out where the company is located and where it does business.
• Contact the Better Business Bureau, state Attorney General, and local consumer protection agencies in the state where the company is located. Ask whether complaints have been lodged against the company.
• Ask if the company's salespeople are licensed to sell real estate by the state where your timeshare is located. If so, verify this with the state licensing board.
• Be wary of companies charging an advance "listing" fee for services. Consider opting for a company that offers to sell for a fee only after the timeshare is sold.

You have several other resale options. You may try selling your timeshare yourself, by placing an ad in a newspaper or magazine, or contacting a real estate agent familiar with the area. If all the timeshares have been sold in your development, consider asking the seller to establish an on-site resales office. As an alternative, you may consider an exchange program. For a fee, these programs allow you to arrange trades with other resort units in different locations.

For More Information or if you have a complaint about a company that offers to resell timeshares, write to:

Correspondence Branch
Federal Trade Commission
Washington, D.C. 20580

Although the FTC cannot intervene in individual disputes, the information you provide may indicate a pattern of possible law violations requiring action by the Commission.