Yes, equity skimming is illegal under federal law. Three separate criminal statutes make it a felony to take title to a home, pocket the rent or refinancing proceeds, and let the mortgage go unpaid, with penalties of up to five years in prison and fines reaching $500,000 depending on the type of property. Prosecutors routinely add bank fraud, wire fraud, and mail fraud charges on top, which is why actual sentences in these cases often run much longer than the equity skimming statutes alone would suggest.
What Equity Skimming Is
The scheme follows a predictable shape. Someone approaches a homeowner who is behind on payments or facing foreclosure and offers to “take over” the mortgage if the homeowner signs over the deed. Sometimes the arrangement is dressed up as a lease, a contract-for-deed, or a sale-leaseback so the homeowner believes they still have an ownership interest or a path to buy the home back.
Once title transfers, the mortgage payments stop. The new owner collects rent from the original homeowner or from new tenants, and often refinances to strip out whatever equity is left. The property eventually goes into foreclosure. By then the scammer is gone with the cash, and the original homeowner has lost the house and taken the credit damage for a loan they thought was being paid.
Because the harm falls on both the homeowner and the federally backed loan behind the property, Congress wrote criminal statutes aimed directly at this conduct.
The Federal Statutes That Make It a Crime
One- to Four-Family Homes With FHA or VA Loans
Under 12 U.S.C. § 1709-2, it is a federal crime to engage in a pattern of buying one- to four-family dwellings secured by FHA-insured or VA-guaranteed loans, fail to make the mortgage payments, and divert the rents for personal use. The penalty is up to five years in prison and a fine of up to $250,000. The statute reaches the purchaser, any beneficial owner operating through a business entity or trust, and any officer, director, or agent involved in the scheme. A narrow exemption applies to someone who buys only a single dwelling.1Office of the Law Revision Counsel. 12 US Code 1709-2 – Equity Skimming; Penalty; Persons Liable; One Dwelling Exemption
Multifamily and HUD-Assisted Properties
A separate statute, 12 U.S.C. § 1715z-19, covers multifamily projects and one- to four-family residences that secure certain HUD-related mortgage notes. When an owner, agent, or manager diverts rents or other property income for unauthorized purposes while the mortgage is in default, the penalty rises to up to five years in prison and a fine of up to $500,000.2Office of the Law Revision Counsel. 12 US Code 1715z-19 – Equity Skimming Penalty
Rural Housing Properties
Properties secured by loans made or guaranteed under USDA rural housing programs have their own equity skimming provisions at 42 U.S.C. § 1490s. The criminal penalty is up to five years in prison and a fine set under Title 18. The same statute also authorizes civil penalties of up to $25,000 per violation, and those civil penalties can be imposed on top of any criminal sentence.3Office of the Law Revision Counsel. 42 US Code 1490s – Enforcement Provisions
The Other Charges That Usually Come With It
Equity skimming almost never travels alone. The schemes typically involve forged documents, fraudulent loan applications, and communications sent by mail or wire. That opens the door to additional federal charges that carry far steeper penalties than the equity skimming statutes themselves.
- Bank fraud under 18 U.S.C. § 1344 carries up to 30 years in prison and a fine of up to $1,000,000 for defrauding a financial institution.4Office of the Law Revision Counsel. 18 US Code 1344 – Bank Fraud
- Wire fraud under 18 U.S.C. § 1343 carries up to 20 years, and up to 30 years with a $1,000,000 fine when the scheme affects a financial institution.5Office of the Law Revision Counsel. 18 US Code 1343 – Fraud by Wire, Radio, or Television
- Mail fraud under 18 U.S.C. § 1341 carries the same penalties as wire fraud: up to 20 years, or 30 years and $1,000,000 when a financial institution is involved.6Office of the Law Revision Counsel. 18 US Code 1341 – Frauds and Swindles
- False statements under 18 U.S.C. § 1014, made to influence HUD or FHA action on a loan or insurance application, carry up to 30 years and a $1,000,000 fine.7Office of the Law Revision Counsel. 18 US Code 1014 – Loan and Credit Applications Generally
A single scheme can generate dozens of individual counts of wire, mail, or bank fraud, and sentences can run consecutively. That is why real-world equity skimming prosecutions routinely produce prison terms well beyond the five-year ceiling of the equity skimming statutes.
How to Tell If Someone Is Running This on You
The schemes share recognizable patterns, and spotting them before you sign is the only reliable defense.
- Pressure to sign documents quickly, with discouragement from reading them or having a lawyer review them.
- A request that you sign over your deed or grant a power of attorney. Legitimate foreclosure help does not require giving up title.
- Promises that foreclosure can be stopped at no cost to you, or that you can stay in the home indefinitely while someone else “handles everything.”
- Instructions to stop communicating with your lender or servicer. The federal Mortgage Assistance Relief Services (MARS) Rule makes that direction illegal.8Federal Trade Commission. Mortgage Assistance Relief Services Rule: A Compliance Guide for Business
- Upfront fees for foreclosure help. The MARS Rule bars collecting payment until the provider delivers a written offer of relief that you accept.8Federal Trade Commission. Mortgage Assistance Relief Services Rule: A Compliance Guide for Business
- Resistance to an appraisal or inspection, which would reveal the real value of the home.
Sale-leaseback offers deserve particular care. The FTC has warned that residential versions aimed at distressed homeowners often bury steep fees, fast-escalating rent, and eviction risk inside complicated contracts. Once you sign, you no longer own the home. The FTC’s guidance is blunt: walk away from pressure, stop if the contract does not match what was promised, and bring in a lawyer or a trusted family member before signing anything that touches your title.9Federal Trade Commission. Risky Business: Offers to Cash Out Your Home Equity Through a Sale-Leaseback
What to Do If It Already Happened
Acting quickly matters. The earlier you move, the better your chances of saving the home, limiting credit damage, and preserving civil claims against the scammer.
File Complaints in More Than One Place
No single agency handles every piece of mortgage fraud, so file with several.
- Your state attorney general’s office, which handles consumer fraud complaints and may already be tracking the scheme.
- HUD’s Office of Inspector General, which investigates fraud involving FHA-insured mortgages. HUD’s National Servicing Center can be reached at (877) 622-8525.10U.S. Department of Housing and Urban Development (HUD). Loan Modification or Foreclosure Rescue Scams
- The Consumer Financial Protection Bureau, which accepts mortgage complaints and forwards them to the company for a response, usually within 15 days. Include dates, amounts, and copies of relevant documents (up to 50 pages).11Consumer Financial Protection Bureau. Submit a Complaint
- Local law enforcement. A police report creates a record that helps later with credit disputes and civil recovery.
Call a HUD-Approved Housing Counselor
HUD-approved counselors work for free and can contact your lender or servicer on your behalf, even if payments have already been missed or a foreclosure notice has arrived. The referral line is (800) 569-4287.12U.S. Department of Housing and Urban Development (HUD). Avoiding Foreclosure
Dispute Any Fraudulent Credit Entries
If a foreclosure caused by the scheme shows up on your credit report, the Fair Credit Reporting Act gives you the right to dispute it. Each bureau — Equifax, Experian, and TransUnion — must investigate within 30 days, with up to 15 additional days if you send new information during the investigation.13Office of the Law Revision Counsel. 15 US Code 1681i – Procedure in Case of Disputed Accuracy Send disputes by certified mail with return receipt. Explain why the entry is wrong and attach supporting records: mortgage statements showing you were current, property records, and any correspondence with the scammer or your original servicer. If the bureau cannot verify the entry, it must delete it.
Talk to a Lawyer
An attorney who handles real estate fraud can tell you whether a quiet title action to restore your ownership is viable and whether you have civil claims for damages against the scammer. Fees for quiet title cases typically run from a few thousand dollars to $15,000 depending on complexity, and some legal aid organizations take fraud-related housing cases at reduced or no cost.