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Avoiding loan scams after a natural disaster

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UPDATE: As Hurricane Sandy continues to make its way up the East Coast, we wanted to highlight this blog post from last year’s hurricane season. Frauds and scams are too common in the aftermath of a natural disaster. The warning signs and tips below can help you avoid getting caught up in one of these scams as you start cleaning up from the storm.   – The CFPB Web Team

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This year has seen quite a few notable natural disasters, including deadly tornados, wild fires, and floods. Most recently an unusually strong earthquake, hurricane, and floods have struck the eastern United States.

Of course, with any disaster comes the cleanup, which can be expensive. Unfortunately, many families do not have emergency funds and may need to borrow money in a hurry to make important repairs. This post-disaster stress can sometimes make us easier targets for deceptive lenders.

In particular, watch out for the “home improvement” loan scam. Here’s how the FTC has described this fraud:

A contractor calls or knocks on your door and offers to install a new roof or remodel your kitchen at a price that sounds reasonable. You tell him you’re interested, but can’t afford it. He tells you it’s no problem—he can arrange financing through a lender he knows. You agree to the project, and the contractor begins work. At some point after the contractor begins, you are asked to sign a lot of papers. The papers may be blank or the lender may rush you to sign before you have time to read what you’ve been given. The contractor threatens to leave the work on your house unfinished if you don’t sign. You sign the papers. Only later, you realize that the papers you signed are a home equity loan. The interest rate, points and fees seem very high. To make matters worse, the work on your home isn’t done right or hasn’t been completed, and the contractor, who may have been paid by the lender, has little interest in completing the work to your satisfaction.

Fortunately, there are things to watch out for and things you can do to avoid these scams.

Warning signs:

  • The contractor demands full payment up front or in cash only.
  • The contractor has no physical address or refuses to show ID.
  • You have to disclose personal financial information (perhaps to “speed up payment”) to start the repair or lending process.
  • If you have to borrow to pay for the repairs, the contractor steers you toward a particular lender or tries to act as an intermediary between you and a lender.
  • You are asked to sign something without enough time to review it.

Avoiding the scam:

  • Carefully question strangers who show up and knock on your door, offering repairs.
  • Never give any personal financial information, such as an insurance number or Social Security Number.
  • Never sign any document without fully reading and understanding it. If you don’t understand something, ask for an explanation.
  • Do your own research before borrowing any money to pay for repairs.
  • Get a loan quote from someone who is not recommended by your contractor and compare their amounts, repayment schedules, and rates. If they differ significantly, ask both parties why.

The Department of Housing and Urban Development has information that can help you be smart about home improvement loans. Find out more about federal and community-based programs, as well as general consumer advice. Your own state’s attorney general may also be a good resource to learn more or file a complaint.

These are not the only post-disaster scams you may encounter. For more information about avoiding other types of scams like repair scams and charitable giving scams, check out these resources:

  • Bret Mike

    The mortgage insurance lead will help you pay the reduced amount of down
    payment. For example; if you are buying a home you will have to make
    the down payment.But if you get mortgage amount more than seventy five
    per cent, then you should have to take the mortgage insurance lead
    through which you should only make five per cent of the down payment in
    purchasing the home.

  • http://www.clarencehub.info/watchpacquiaovsmarquez3livestream/ Isabella Matts

    This a nice post, i really can’t understand people who take advantage situations like this, this scammers should be ashamed to their selves.

  • http://www.clarencehub.info/ Natasha Burret

    Absolutely i agree to Bret and Isabella, we should also watch and be aware of everything, i understand that we sometimes tend to react by impulse we forgot to assess everything else, but definitely those scammers should be ashamed of their selves. any way thanks for sharing this post.

  • http://www.surehitz.com/ Jewel Brandt

    I really like the post well one of relatives was affected by katrina, it’s so devastating the extent of the damage is so extreme,  i just don’t why other people reall take this as an advantage. thanks for sharing ill be sharing this link to my relatives.

  • http://www.mydecogift.ro Jamaik2004

    I can not believe that someone, anyone, can take advantage of such situations. And you think God is sleeping? No one can deceive God sees it all that makes man regardless of situation.

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