If you’re a homeowner, you may be thinking about how to use your home equity to pay for big expenses, settle credit card debt, or make needed home improvements. But before you take out a loan or respond to an offer, you need to watch out for scammers. Many homeowners have fallen victim to scams that target the equity in their homes—putting their property, money, and ownership at risk.
In this article, we’ll cover four major home equity scams to avoid and offer ways to protect yourself, your mortgage, and your home.
One of the most dangerous foreclosure related scams is the foreclosure rescue scheme. These scams target homeowners who are facing foreclosure and feeling desperate to save their homes.
In a typical foreclosure rescue scam, the scammer promises to stop the foreclosure process or get you a new loan. They may offer to “buy” your home and let you rent it back while you get back on your feet. But what really happens is you sign over the deed and lose ownership of your home without truly understanding the deal. These scams often involve complicated documents, hidden fees, and no real rescue.
To stay safe, never assign over the deed to your property unless you fully understand the deal and have gotten independent legal advice. Only your mortgage servicer has the power to approve a true loan modification.
Loan modification scams are another trap that homeowners facing foreclosure or high mortgage payments may fall into. In these cases, the scammer claims they can help you get a lower interest rate, extend the term of your loan, or reduce your monthly payments.
They may charge large upfront fees and tell you to stop talking to your lender or servicer. Unfortunately, these scammers usually do nothing, leaving you in worse financial shape and still at risk of foreclosure.
Remember, only your mortgage servicer can approve a loan modification, and it’s illegal for third-party companies to charge you upfront for this service. If someone promises fast results for a fee, it’s likely a scam.
For real help, work with a HUD-approved housing counselor who can guide you through the proper steps. You can find one through HUD.gov or by visiting Credit.org's Housing Assistance page.
Some scammers pretend to be connected to the government or legal aid programs. They may use names like the Federal Trade Commission, Department of Housing and Urban Development, or state mortgage assistance programs. They’ll claim to offer official help with your home equity loan, loan modification, or foreclosure rescue.
These fraudsters are clever. They might send fake letters, emails, or websites with government logos, making them seem official. But their real goal is to get you to pay for help you could get for free, or worse, steal your money, house, or personal information.
If you’re not sure, call the Consumer Financial Protection Bureau or a certified housing counselor for help.
Equity stripping is a type of scam where fraudsters take the equity from your home without providing anything of value in return. These scams often target people with low credit scores or those who are behind on payments and struggling to avoid foreclosure.
Here’s how it usually works: a scammer offers you a loan or promises to help with a new mortgage loan. You’re told that you can borrow money using your home equity as collateral. But the terms are predatory—extremely high interest rates, hidden fees, or balloon payments that you can’t afford. You may also be asked to sign documents that give the scammer ownership interest in your home.
In the end, you either lose your home or owe more than your house is worth. Sometimes, the scammer disappears with your payments, and you’re left in foreclosure with no legal protection.
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To avoid equity stripping, always review your financing options with a certified housing counselor or trusted legal expert. A real lender will evaluate your income and payment ability before approving any home equity loan.
Avoiding scams means being aware of the tricks scam operators use and knowing your rights as a homeowner. Whether you’re struggling with foreclosure, seeking a loan modification, or considering tapping into your home equity, here’s how to protect yourself:
If you suspect a scam, report it immediately to the Federal Trade Commission at reportfraud.ftc.gov or to your state attorney general. You can also reach out to local nonprofit organizations like Credit.org, which provides free housing counseling and foreclosure prevention support.
A qualified housing counselor can be a crucial line of defense against home equity scams. These professionals understand the foreclosure process and can help you navigate complex documents, avoid hidden charges, and protect your deed. They’re trained to spot signs of fraud that unsophisticated borrowers might miss. Housing counselors also provide free or low-cost services to help you understand financing options and avoid predatory lenders. Before signing anything or agreeing to a new loan, contact a HUD-approved counselor. Their guidance can prevent serious legal and financial consequences—especially if you’re already facing foreclosure or dealing with mortgage debt.
For more support, check out these trusted resources:
And for additional reading from Credit.org:
There are many forms of scams in the housing market, and unfortunately, many homeowners don’t know the risks until it’s too late. Whether it’s foreclosure rescue, fake loan modification services, or predatory equity loans, these schemes can cost you your home, money, and peace of mind.
Always be cautious, ask questions, and consult professionals. Your home is likely your biggest asset—protect it with smart decisions, reliable information, and support from trusted organizations.
To learn more, check out our Predatory Lending and Preserving Homeownership/Foreclosure Prevention booklets, available as free downloads from our FIT Academy.
If you want to learn more about budgeting or how to reach your financial goals, get started with our free, confidential counseling and education right here at Credit.org.
