Definition
Equity stripping is a predatory scheme that takes the built-up value of a home from an owner in distress. Common versions include a "rescue" where you sign the deed to someone who promises to let you rent and buy the house back later, a refinance loaded with fees you can't afford, or a contract that hides who will own the home after closing. The owner often loses the house and the equity, while the mortgage may even stay in their name. Federal agencies such as the FTC and CFPB, along with state attorneys general, warn about foreclosure-rescue scams, and many states have specific laws against them. Red flags include up-front fees before any service, pressure to sign quickly, advice to stop talking to your lender, or a request to sign over the deed. A legitimate buyer pays you at closing through a licensed title company or attorney, with a settlement statement showing every dollar.
Real seller example
Gloria Hayes, facing foreclosure, was approached by a man who offered to "save" her home if she signed the deed to his company and paid rent for a year, with an option to buy it back. Her daughter read the paperwork and noticed there was no payoff of the mortgage, no title company, and a buyback price far above what Gloria owed. They declined and called a HUD-approved housing counselor. With the counselor's help, Gloria compared a loan modification with a straightforward sale through a title company. She chose the sale, saw every figure on a settlement statement, and kept her remaining equity.
Frequently asked questions
Closing should happen through a licensed title company or attorney, the mortgage should be paid off at closing, and you should receive a settlement statement. Never pay up-front fees to sell.
Not always, but it's a common setup for equity stripping. Have an attorney review any deal where you give up the deed and keep living there.
You can report to the FTC, the CFPB, and your state attorney general.
No. That's a classic warning sign. Keep communicating with your servicer.
Possibly, depending on state law and timing. Contact an attorney or legal aid immediately.
Funds are paid at closing through a title company, after your loan and any liens are paid, with a settlement statement showing each line.