What is "Equity Striping"?

I heard this term in an article elsewhere on the web, and I wondered how this is supposed to be illegal?

Does this mean to say someone is doing something wrong by offering as an investor less than FMV or appraisal to a seller? What if they accept? Sounds kind silly. But maybe they mean something else?

The only reference I can find is to mortgage lenders that take title, and make you a tenant. But the original term when I heard it was being applied to Investors.

It’s equity “Stripping” and unfortunately there are people (investors and lenders) looking to take advantage of homeowners forced into foreclosure. Because of the rise in home prices, many people in foreclosure still have significant equity in their home. Equity is the difference between what you owe on the home and the amount you can get from selling the home. For example, a homeowner with a house worth $150,000 who owes $80,000 on a first mortgage and $20,000 on a home equity line has about $50,000 in equity— which is the $150,000 home value minus the $100,000 in loans.

Foreclosed homeowners with equity need to watch out for scam artists who try to take all the equity from the homeowner. This is what is known as “equity stripping.” The scam works in a variety of ways, but it usually starts when someone promises the homeowners that he will solve all their problems and keep them in their home. The scammer promises loan money that never appears, or has the homeowners sign a lot of complicated papers. The end result often is that the homeowners end up owing more per month than before the foreclosure and are quickly forced out of the house. In most cases, the homeowners receive little or nothing for their home equity.

Here’s an example: On April 28, 2003, Attorney General Mike Hatch filed a lawsuit claiming that Home Funding Corporation (“HFC”) and other defendants “stripped” the equity from many Minnesota homeowners in foreclosure. The lawsuit states that HFC ran newspaper advertisements offering help, including loans, to homeowners in foreclosure. HFC, however, never really gave anyone a loan. Instead, homeowners were led to believe that they would get new financing, but actually were turned into renters and all of their home equity was drained by HFC or others.

Hope this answers your question.


Nothing I have to worry about then as far as buying subto at a discount.

Just make sure you are aware of your state’s regulations re foreclosures to be safe. They vary from state to state.

I intend to stay away from foreclosures. Besides everybody and his brother working them I do not think you can deal with the bank unless you have a lot of money, and 800 plus fico. Why would the bank go from one bad debt to potentially another one in their eyes?

I was looking at getting into Lease options or maybe subto. Gary do you have any recommendations?