Transferring equity as a means to avoid foreclosure is a risky practice. And if you are in a state that has specific Equity Conveyance laws, trying to understand the mechanics of the process for your licensing exam can be confusing.
An equity purchaser is not the bank or lender holding the current mortgage note. An equity purchaser is an outside party who “comes to the rescue” of a homeowner being foreclosed upon.
In essence, when a homeowner is faced with imminent foreclosure, an equity purchaser offers to buy the home and then lease or rent it back to the original owner until the owner is able to refinance on his own. This in itself may not be illegal and has been done legitimately and to the benefit of many homeowners in some states.
It’s when the process goes wrong, the law is not followed or the equity purchaser has ulterior motives that people lose their homes even though they thought they were safe from eviction. There are many predatory schemes that have been employed in leaseback arrangements, and thus a number of state laws protecting homeowners in these situations have been enacted.
Here is a good article about “Equity Stripping.” It may help you better understand these concepts and therefore do better on your state exam!