What Is Equity Stripping?

There are a number of applicable definitions for equity stripping. In general, it can be referred to as a sleight-of-hand, on the part of either a homeowner or the lender.

Back when housing prices were continually on the rise, there was an overabundance of greedy lenders that offered to refinance home loans again and again for unsuspecting folks looking for a better deal. However, the homeowners gained very little in terms of net benefit given the exorbitant fees the lenders would collect, from origination fees to closing costs. Before too long, the homeowner had no equity to speak of and little to show for his or her expenditures. This process can be referred to as either loan flopping or equity stripping.

If you as the homeowner used the equity in your home in a manner that could be deemed frivolous, the lender will do his best to show that you were fully aware of the benefit provided from the process, and you may be unable to prove negligence. However, if there is evidence that the appraisal acquired on the home was more than the market would bear at the time or you "qualified" for a loan that you did not have the income to justify, then you may certainly have a case against the lender for equity stripping.