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.
Never agree to any contract whose payments you cannot afford.
Never sign documents that you have not read and understand.
Never sign documents that are incomplete or have blanks.
Never allow anyone to pressure you into signing any document.
Never transfer title to to your property to another person or company
without consulting an attorney or trusted family member.
Never accept contractor arranged financing without comparing rates
from other trusted lenders.