In a housing market where most homeowners owe more than their properties
are worth, there are some people who still have a substantial amount of
equity. Unfortunately, these are the people who are the target of scam artists.
Some homeowners are finding themselves feeling pressured to pull money
from their home equity, either by taking cash out from a credit line or
reverse mortgage. They are then induced to lend this money to limited-liability
companies or partnerships with the promise of a steady return on investment.
There was an article in
The Wall Street Journal that discussed the story of a 47-year-old woman in Orange County, California
who used her home equity to invest in a local company. The firm, MacArthur
Birch LLC, allegedly led the investor to believe that her money would
go into a trust that would purchase international securities. She was
even provided with a promissory note pledging a monthly return of 5 percent
for a year. Instead of making money, she lost it.
If someone approaches you and requests that you use your home equity to
invest in a business, you need to be cautious. Don’t do anything
until you conduct a background check on the investment and have looked
into the broker and the firm. You can contact your state securities department
for information and can research the broker’s history using FINRA’s