09 Apr Reverse Mortgage Scams Target Seniors
Reverse Mortgage Scams Target Seniors
Barry E. Haimo, Esq.
April 9, 2015
Though reverse mortgage loans are supposedly designed to help seniors keep their homes, this financing option can end up casting financially vulnerable elderly adults out. Reverse mortgages are a special type of loan for homeowners over the age of 62, where the homeowner is able to convert the equity in their home into income. Seniors receive loan proceeds as monthly payments, a line of credit, or a lump sum. Unlike with traditional loans, borrowers aren’t required to repay the loan through regular contributions. The loan is only repaid after the homeowner passes away or moves.
This type of financing often appears attractive to seniors in need of financial assistance to pay off immediate needs, such as debts or an existing mortgage. In some cases, seniors are simply hoping to supplement their income in order to be able to afford to stay in their home.
However, there are many problems and risks that accompany reverse mortgage loans – something Loretta Joy only discovered when it was too late.
A Last Resort
Loretta Joy was heartbroken when her husband Albert passed away. Albert hadn’t crafted a solid estate plan, so all he left behind for his wife was a big empty house, seven hungry cats, and a substantial amount of credit card dept. Loretta managed to get by for several years on their social security, savings, and the money she earned working as a part-time receptionist at the library. But when their savings dried up and the short walk to the library became too much for Loretta, she began to grow desperate for other sources of income. She had Christmas presents for her grandchildren to buy, medications to pay for, and—of course—seven hungry cats to feed.
So when Loretta received a phone call one morning promising her a way out, she jumped at the opportunity. The unfamiliar voice on the other end of the line identified himself as Andrew Brasher, a local financing professional, whose job it was to offer financial assistance to senior citizens in the neighborhood. After asking a few questions about her home and lifestyle, Andrew Brasher announced that he had wonderful news—she qualified for free financial assistance as a homeowner with something called a reverse mortgage loan!
With a reverse mortgage loan, Andrew assured her, she could receive a large payment against the value of her house that she would never have to pay back. He guaranteed there was no danger of losing her home. He encouraged her to act quickly before the offer ended. Not wanting to miss out on this opportunity, Loretta hastily agreed to apply.
For the first few months, Loretta was thrilled with her newfound spending money. She bought expensive bicycles for all her grandchildren and shopped at only the fanciest pet boutiques to buy her cat food. She began taking cruises, where she made plenty of friends with fellow vacationing seniors. For the first time in years, she felt like she wasn’t alone.
But it wasn’t long before the lump sum of money Loretta received had run dry. Suddenly, Loretta was unable to pay property taxes, insurance, or fees for maintaining her house. But she didn’t realize she was in danger of losing her home until she received a call from a representative of her reverse mortgage company, warning her that her home was subject to foreclosure because she had failed to meet the obligations of the mortgage. Andrew Brasher had neglected to tell her that there are certain circumstances when reverse mortgage loans become due and payable—for instance, if you fail to meet obligations such as paying property taxes, keeping up insurance, and maintaining the property.
Loretta found herself in even deeper financial trouble than she had been before taking the reverse mortgage, suddenly facing the prospect of losing the only asset her husband had left her—her home. Terrified at the prospect of being put out on the street, Loretta turned to her children for help. Fortunately, they were able to help her make the necessary payments and assisted her in finding an estate planning attorney who was able to show her how to manage her few remaining financial resources wisely.
Avoiding Reverse Mortgage Entirely with Proper Estate Planning
Loretta was one of the many financially vulnerable seniors victimized by manipulative reverse mortgage salesmen. It’s very common for mortgage brokers to target the elderly, using aggressive, manipulative, or deceptive marketing tactics. Oftentimes, brokers will advertise reverse mortgages as free money, neglecting to include information about the fees and risks associated with these types of loans. If seniors are unable to meet these conditions, they risk losing their home.
Fortunately, seniors can avoid the lure of this oftentimes risky financing option entirely by having a proper financial budgeting system in place. An estate planning attorney can help you determine how to best protect your assets from con artists and the like, and help you set up a trust that will provide for a spouse in the event of your passing.
Barry E. Haimo, Esq.