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Don’t Be Tricked into Losing Your Home, Gallagher Warns

10/30/2003

CONTACT: Tami Torres
(850) 413-2842

TALLAHASSEE—A 65-year old man is convinced to take out a home equity loan to repair tornado damage to his roof. He is told that a federal grant will help him pay back the $50,000 loan. However, the federal grant doesn't exist, and the man defaults on the loan and loses his home of 21 years.

Unfortunately, the kind of scenario happens too often. With home equity loans on the rise, Florida's Chief Financial Officer Tom Gallagher is warning consumers to not be tricked into taking out a loan when they cannot afford to repay it and risk losing their homes to foreclosure.

"Beware of predatory lenders who misrepresent the terms of a loan in order to trick you out of the ownership of your home," said Gallagher, who oversees the Department of Financial Services. "Check out the company you are dealing with, don't sign blank documents and make sure you understand all terms of the loan."

Unscrupulous lenders often prey on people who are in financial trouble or have limited incomes. According to the AARP, seniors with limited resources are often targeted because they have built a large amount of equity in their homes. Almost 80 percent of older Americans are homeowners and own their homes free and clear.

Sample sales tactics used are:

§ Door-to-door salespeople offering "bargain loans."
§ Salespeople who promise "No Credit? No Problem."
§ Offers that are good only for a very short time.


On home equity loans and second mortgages, the lender must give you notice of all costs and advise you of your right to cancel the loan within three days. Lenders cannot make direct payments to home repair contractors and cannot require balloon payments on loans that mature in less than 10 years. Florida law also prohibits a lender from offering to originate a loan at the borrower's home without a pre-arranged appointment.

Consider the following if you plan to take out a home equity loan:
§ If you need to borrow money for home repairs, medical expenses, or bill consolidation, shop around. Compare interest rates and total costs. A lower monthly payment is not always the better deal.

§ Find out what the total cost of the loan will be before making a decision.

§ Check out the lender you are considering. Check with your local Better Business Bureau or call the DFS Helpline at 1-800-342-2762 and ask if there have been complaints against any company you are considering.

§ Avoid lenders who call and promise guaranteed, low-interest loans, take applications over the phone, or offer next-day approval if you pay an up-front fee.

§ Read everything carefully and ask questions. You have a legal right to know the total cost of the loan, the annual percentage rate, the monthly payments, and how long you have to pay back the loan. Ask to have all fees explained.

To verify if a company or broker is licensed, consumers can contact the Department of Financial Services' toll-free helpline at 1-800-342-2762. Consumers can also log on to the department's website at www.fldfs.com and click on the link for "Consumer Tips on Predatory Lending."