Equity Stripping Explained

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Equity stripping is a process that is used by property owners in order to eliminate equity in a property. This process is often used to discourage lawsuits or foreclosure proceedings that could jeopardize a property. Here are the basics of equity stripping and how it is used in today's market.

Stymie Creditors

The basic idea behind equity stripping is that you want to eliminate any equity in a property. This will make it much more difficult for creditors to get their hands on any equity in your property. If there is no equity in the property, they will be much less likely to file a lawsuit in an attempt to get the money that you owe them from your home.

Home-Equity Line of Credit

One of the most common ways to utilize this strategy is to open a home-equity line of credit. With a home-equity line of credit or HELOC, you will be able to reserve a portion of the equity if you need access to it. With a home-equity line of credit, you can take out the money whenever you want, but you do not necessarily have to. By using this technique, your creditors will not see any available equity in your house since the home-equity line of credit is taking it up.

Home-Equity Loan

Another technique that you can use is to get a home-equity loan. With a home-equity loan, you are going to take out a loan in the amount of your home-equity. With this technique, you are going to get the entire amount of your equity in cash upfront. This makes it a little more risky because you are actually taking out the cash instead of just opening a line of credit. When this happens, you will have to start making regular payments to the lender.

Homestead Exemption

You might also want to consider looking into a homestead exemption. This is a strategy that can only be used in states that have a provision for homestead exemptions. With this type of exemption, a creditor can only take so much money out of your equity in order to pay off a debt. If you are aware of how much the homestead exemption is in your state, you can utilize home-equity loans or lines of credit in order to stay above this threshold. This will allow you to make sure that you cannot have your equity removed through a lawsuit.

Friendly Loans

Another tactic that many individuals choose to use is called a friendly loan. This is a loan that you take out from someone that is a close friend or business associate. They can set up a trust or some other type of legal entity in order to provide a loan to you. Many of these loans are not actually set up like a traditional loan. However, it is simply something to discourage creditors from trying to take equity in your home with a lawsuit.