Homeowners Persuaded to Lend Their Home Equity
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 BrokerCheck.