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What is loan flipping?

Loan flipping occurs when a borrower has built up some equity in his or her house, and a ‘lender’ calls them up and offers them cash in exchange for the equity. Usually the ‘lender’ will continue to convince the borrower to cash out until all equity has been squeezed out of the house. While these cash-out refinances aren’t uncommon when initiated by the homeowner, there’s the distinct possibility of being taken advantage of if you’re not careful.

Why is it so bad?

Once you get your cash, repayment bills start coming in, which are the fees the lenders charged you for their services. This isn’t abnormal on its own, but often the fees are greater than 6%, which is higher than standard banking refinance fees. Often the fees are so great that many people can’t even begin to pay them. Worst case scenario? Homeowners have lost their houses because of loan flipping.

How do you know a loan flipper when you see one?

First off, use your common sense. Loan flippers are often gifted with a silver tongue, which is often the tell-tale sign of a liar. Are they offering you the world with your refinance? Are they telling you how much nicer life will be afterwards? Are they doing all of this over the phone? If the answer to all three is yes, hang up. Legitimate refinancing companies are most likely going to be companies you’ve heard of, and will only want to talk to you if you yourself contact them first. If you’re not the one to have initiated contact, and you’ve never heard of their company, once again, hang up.

How do you protect yourself against loan flippers?

Apart from not talking with anyone from a company you’ve never heard of that’s offering you money, there are a couple of things you can do.

  1. Ensure that the lender is a member of a trade group, such as the National Association of Mortgage Brokers, Morgage Banker’s Association, or the Financial Industry Regulatory Authority. There are more than these three, so double check any name they give you.
  2. Ask about any fees associated with their services. If they don’t take the time to fully answer and explain, move on. Reputable banks always answer this question to the fullest extent, and will generally also have some literature to pass along as well.
  3. Never close until you fully understand the entire process. Again, if they provide any nebulous answers, it’s probably best for you to just walk away.

Writer

Lauren Ward is a widely featured author with her work gaining a presence on top media outlets like Huffington Post, Kiplinger, and CBS News. She has been in the content writing business for almost a decade (9 years of experience and counting) and writes attention-grabbing content focusing on real estate, lending, and personal finance. She has worked with various national non-profit organizations and at Federal Reserve Bank of Richmond. Read more >

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