Your doorbell rings. When you open the door, you meet a “local” contractor who is doing work in your area. He offers to remodel your bathroom or put a new roof on your house, and his price sounds amazingly reasonable. You’re interested but can’t afford the work without a loan. He tells you he can put together some financing with a lender he knows. You agree to the plan, and the contractor begins his work.
Soon after, the lender stops by and hurries you to sign a bunch of papers. You may not fully understand the papers, or perhaps you don’t agree with everything you see. But you can’t afford to have the contractor leave at this point, so you sign them.
After it’s too late, you realize that the group of documents you signed were essentially a kind of home equity loan with high points, fees, and interest rate. If you fail to make the payments, the lender could foreclose on your house.
If you haven’t done your homework in checking out the contractor, you may also find that his work is shoddy or incomplete—or that he isn’t icensed. If the lender works regularly with the contractor making these kinds of loans, he won't work with you to hold the contractor accountable.
