Equity Stripping: What Homeowners Need to Know

Last updated July 2026

If you are behind on your mortgage, you are a target. Not because of anything you did wrong, but because foreclosure filings are public record, and there are people who read those records every day looking for someone to exploit.

This page explains how equity stripping schemes work, what the warning signs look like, and what to do if someone approaches you with an offer to "save your home."

What is equity stripping?

Equity is the part of your home you actually own — the difference between what the home is worth and what you still owe on it. For many families, it is the largest amount of money they will ever build.

Equity stripping is a scheme that takes that money. The operators target homeowners in financial distress, most often those facing foreclosure, and use deceptive paperwork to take ownership of the home, or the equity in it, for far less than it is worth. The homeowner is usually told the arrangement will save the house. By the time the family understands what they signed, the equity is gone.

The FTC's mortgage-relief guidance describes equity-skimming and deed-transfer schemes. The MARS Rule generally bars covered providers from collecting fees before a homeowner accepts a written lender relief offer; the attorney exemption has specific conditions.

A documented warning

The FTC describes an equity-skimming scenario in which an operator persuades an owner to transfer a deed, rents out the home, and keeps the rent while foreclosure proceeds. Transferring the deed does not transfer the owner's existing mortgage obligation.

This agency guidance supports the warning without treating allegations in a particular case as proven facts or claiming an unverified settlement outcome.

Procedures and public notices vary by jurisdiction. Owners facing financial pressure should obtain independent help regardless of where the property is located.

How the scheme works

Details vary, but the pattern is consistent.

1. The operators watch public records. Foreclosure notices are filed with the county, so anyone can see who is in trouble and where they live.

2. They make contact fast, often before the homeowner has spoken to anyone else. A knock on the door, a letter, a phone call, a text. The tone is urgent and sympathetic: we can stop the foreclosure, we can save your home, but you have to act now.

3. They present paperwork that sounds like rescue. Common versions include signing the deed over "temporarily," a sale-leaseback where you sell the home but keep living in it as a renter with a promise you can buy it back, or documents described as a loan or a partnership.

4. The paperwork does something different than what was described. The deed transfers. The buyback terms are impossible to meet. The rent is set up to fail. The homeowner loses the home, the equity, or both.

5. The operators resell or refinance the property and take the equity the family spent years building.

Warning signs

Any one of these deserves caution. Two or more together deserve serious caution.

• The offer is unsolicited. They found you — you did not find them.
• They know you are in foreclosure before you told them anything.
• There is pressure to sign quickly, today, before a deadline they emphasize.
• You are asked to sign the deed to your home over to someone else, even "temporarily."
• You are told you can keep living in the home after signing, as a renter or under a buyback promise.
• You are asked to pay a fee up front before any help is provided. Federal rules generally prohibit charging advance fees for mortgage relief services.
• You are discouraged from showing the paperwork to a lawyer, a housing counselor, or your own real estate agent.
• They bring their own notary to you.
• Payments or paperwork run through a company name that is hard to research, or the names keep changing.
• Anything you are told verbally does not appear in the documents.

What to do

If you are facing foreclosure, or someone in that situation has approached you about one of these offers:

Do not let sales pressure replace legal advice. Contact your servicer, counselor, or attorney promptly. Real court and foreclosure deadlines can be urgent; do not ignore them while investigating an offer.

Get independent eyes on the paperwork before you sign anything. A HUD-approved housing counselor is free. You can find one through the U.S. Department of Housing and Urban Development at hud.gov or by calling (800) 569-4287. A real estate attorney or a licensed agent you choose yourself can also review the documents. The key word is independent: someone the person making the offer did not provide.

Talk to your mortgage servicer directly. Loan modifications, forbearance, and repayment plans come from your lender, not from a stranger at your door. Call the number on your mortgage statement — not a number someone else gives you.

Confirm who you are actually dealing with. Look up the company and the individuals. Every state has a licensing authority where real estate licensees can be looked up, and your secretary of state's office lists registered businesses.

Ask your county recorder about property alert programs. Many counties across the country offer free notification systems that alert you when a document is recorded against your property. Some states are expanding these programs by law. It costs nothing and gives you early warning.

Report it. Contact your state attorney general's consumer protection division. You can also report to the Federal Trade Commission at reportfraud.ftc.gov. In Arizona, reports go to the Attorney General's Office at azag.gov/consumer or (602) 542-5763.

One more thing worth knowing

The people who run these schemes are not always strangers in unmarked cars. Enforcement actions have alleged that licensed professionals and legitimate-looking businesses played roles in making these transactions appear proper. A professional title, on its own, is not a reason to skip the steps above.

About Home Fraud Defense

Home Fraud Defense is a state-approved real estate fraud education school — an ARELLO Affiliate Member and TARGET MARKETS® Affiliate. We train real estate agents and brokers to recognize schemes like this one, and we provide fraud awareness tools that help agents put warnings in front of clients before paperwork gets signed. Learn more about the Fraud Awareness Notice at homefrauddefense.org.

This page is educational. It does not evaluate any specific offer, transaction, or company, and it is not legal advice. If you are facing foreclosure, speak with a HUD-approved housing counselor or an attorney about your situation.