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Equity Stripping

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Equity Stripping

The goal of equity stripping is to transfer the economic value of everything owned by an individual and convert unencumbered assets into debt-ridden assets that are worthless to a plaintiff. Because one cannot always entirely rely on an exemption from claims when assets are titled to one or more protective entities, this additional firewall can be extremely effective.

Equity stripping is accomplished by applying several different types of mortgages and liens against a debtor's real estate or personal property. With the economic value of property transferred to a mortgage holder but title remaining in the original owner's name, it reduces the likelihood of a creditor seizing property.

As an example, if a home is worth more than what is owed on the mortgages (or liens) against it, the residual equity has value to a creditor or claimant. To protect the home, one could reduce (or strip) the equity by increasing the amount and number of mortgages or liens against the property.

If you are not familiar with mortgages — a mortgage is a voluntary lien on real estate to secure a debt that you owe. Some western states call it a deed of trust. Instead of giving the lender a mortgage, the borrower deeds the property to a third party trustee. The borrower can occupy the property as long as the debt is paid. The only difference then between a mortgage and a deed of trust is that a trustee can sell your property at public auction if you default. A mortgage holder must go through a court foreclosure to auction your property.

A lien on personal property is a security agreement, but in most cases the personal property remains in the possession of the secured party and a notice of lien (a financing statement) is used as a public and official notice of the property being encumbered. Multiple liens can be filed against one property and the priority of each lien is then established by their priority of filing in the public records.

Accordingly, and by way of example, a $500,000 home with several liens totaling $500,000 has no value to a creditor and may discourage any pursuit of a claim.


The best defense is a good offense.