How To Avoid a Common Loan Scam
Unethical lenders and brokers are out there and looking to take advantage of you. One scam that shows up amongst homeowners who finance remodel and construction projects involves contractor arranged financing. This is not to say all contractor arranged financing is a scam, just be cautious if you do work with a lender who was referred to you by your contractor.
The way it is works is this: A contractor solicits your business and probably offers a price that makes the deal real tempting. He asks if you will need financing and tells you he knows a lender that can help.
You agree to hire the contractor and work may begin even before any loan documents have been signed. Next you are contacted by the lender who "handles everything" and gives you some documents to sign. Typically he rushes you through the signing and doesn't give you a chance to read the details, or there may be blank places in the documents "to be filled in later".
Later the victim learns that they signed for a home equity loan with a very high interest rate, points and fees. Along with the expensive loan, the contractor's work may be shoddy or even incomplete.
To make matters worse, the victim may not be able to afford the payments, causing them to fall behind. The delinquency will affect their credit and they may be unable to qualify for a more affordable loan to pay off the expensive loan they signed for. In the worst case scenario, they may end up in foreclosure.
Protect yourself from unethical lending practices.