| In recent years, this practice has become more | | | | Typically, the homeowner pays a repurchase price |
| commonplace due to rapidly increasing housing | | | | that substantially exceeds the costs of the equity |
| prices combined with high foreclosure levels. | | | | stripper in acquiring the property but still may be |
| These factors create the perfect environment | | | | below market value. The homeowner usually pays |
| for equity strippers – unsuspecting | | | | rent or Contract for Deed payments that exceed |
| homeowners who have unknowingly built a large | | | | the equity stripper’s monthly expenses to |
| amount of equity in their property and many | | | | own the property and commonly, the repayment |
| homeowners going into foreclosure. | | | | on the Contract for Deed or the monthly rental |
| While equity stripping schemes come in many | | | | payments are structured with an expectation by |
| forms, all schemes are centered around the | | | | the stripper that the homeowner will default. |
| equity stripper obtaining the title to the property | | | | Once a default has occurred, the equity stripper |
| at well below market value. Typically, equity | | | | proceeds to cancel the Contract for Deed and |
| stripping schemes begin in the same fashion. The | | | | evict the homeowner. Thereafter, the equity |
| equity stripper combs publicly available information | | | | stripper obtains the right to sell the property at |
| for property that is in foreclosure or is going into | | | | market value and pocket the difference between |
| foreclosure. The equity stripper will directly or | | | | the sale price and the amount expended to obtain |
| indirectly contact the owner of the property, | | | | the initial transfer. |
| offering to “help save the home” or | | | | There are numerous legal theories upon which a |
| to “help stop the foreclosure.” | | | | homeowner may combat the equity stripper. In |
| Once an interested homeowner is located, the | | | | Minnesota, state law regulates these transactions |
| equity stripper will commonly acquire ownership of | | | | and the homeowner should first check to see if |
| the property in one of two ways. The first way | | | | the transaction which was entered into complies |
| this scheme is carried out is by employing simple | | | | with state law. |
| fraud upon the homeowner. Typically, the equity | | | | Another legal theory commonly employed by the |
| stripper will have the distressed homeowner | | | | effected homeowner is the theory of |
| provide a warranty deed to the property under | | | | “equitable mortgage.” This theory |
| some false representation. Commonly, the | | | | allows courts to look past formal sale |
| representation is something to the effect that the | | | | reconveyance documents and, in certain |
| deed is necessary to begin a refinancing process. | | | | circumstance, recharacterize the transaction as |
| As soon as the deed is obtained, with the equity | | | | mortgage refinancing rather than an outright sale |
| stripper paying substantially less than the value of | | | | of the property. Essentially, the court will look at |
| the property, the equity stripper files the deed | | | | the substance of the transaction over the form. |
| and then proceeds to evict the homeowner. Once | | | | If the transaction as a whole appears more like |
| the former homeowner is evicted, the equity | | | | the equity stripper has loaned the homeowner |
| stripper is free to sell the property at market | | | | money secured by an interest in the property, |
| value and pocket the difference from what was | | | | the courts may find that an equitable mortgage |
| expended to obtain the property. | | | | exists. The advantage in establishing an equitable |
| More commonly used in the equity stripping | | | | mortgage is that the homeowner will be held to |
| process is a reconveyance-type of a scheme. | | | | retain title to the property and gains the right to |
| Essentially, this type of scheme is set up so that | | | | the foreclosure procedure. The homeowner will |
| the equity stripper acquires title to the home with | | | | also retain the right of redemption upon |
| a promise of putting title back to the homeowner | | | | foreclosure. |
| sometime in the future. Typically, in this type of | | | | Additionally, by successfully having this type of |
| scheme, the homeowner is aware that they have | | | | transaction recharacterized as an equitable |
| transferred title and they believe that they will | | | | mortgage, the homeowner may also be able to |
| eventually reacquire title to the property. | | | | assert that the “loan” made by the |
| Commonly, the initial transfer of the property to | | | | equity stripper violates usury laws. As a result, |
| the equity stripper is done by way of a purchase | | | | the debt may be abolished in certain |
| agreement and deed whereby the equity stripper | | | | circumstances. |
| pays the homeowner (or the sheriff or mortgage | | | | Because equity stripping takes many forms, there |
| company) a value roughly equivalent to the | | | | are other legal theories besides equitable |
| amount needed to recover the property from | | | | mortgage that may help the homeowner combat |
| foreclosure or to prevent the property from | | | | the equity stripper. A violation of the Homeowner |
| going into foreclosure. Once the initial transfer is | | | | Equity Protection Act (HOEPA) and a violation of |
| completed, the recoveyance typically occurs | | | | state unfair and deceptive acts and practices are |
| sometime shortly after the initial conveyance and | | | | also common legal arguments that may be |
| many times this reconveyance is done at the | | | | employed. |
| same closing of the initial conveyance. Most often, | | | | Because the schemes used by equity strippers |
| the recoveyance is in the form of a Contract for | | | | vary tremendously, a victim of equity stripping |
| Deed or a lease with a purchase option back to | | | | should immediately consult an attorney to |
| the homeowner. These forms of recoveyance | | | | determine what legal theories, if any, may be |
| are favored by equity strippers because they | | | | useful for protecting their rights. |
| allow the equity stripper to rapidly rid themselves | | | | Equity stripping is a predatory practice by |
| of any interest the homeowner may have in the | | | | unscrupulous individuals designed to identify |
| property upon a default of the Contract for Deed | | | | vulnerable homeowners. |
| or the lease provision by the homeowner. | | | | |