In the recent post from The Oxford Club newsletter, Wealthy Retirement, the Club advises against a new scam targeting seniors. Reverse mortgage scams are arguably the worst senior scams today because they are orchestrated by trusted lenders, advisors or supposedly professional contractors whose aim is taking advantage of elderly folks in need of funds.
It is common knowledge that seniors are scammed mostly by people they know or trust, i.e., family members, caregivers, lawyers, doctors or bankers. Financial planners, realtors, and contractors have joined this list of scammers.
How is a reverse mortgage scam carried out?
To understand how reverse mortgage scams are carried out, it’s important to define the term. Reverse mortgage is a term used to explain a financial agreement (home loan) where a homeowner parts with equity in their home in return for regular payments at a future date. Most homeowners in reverse mortgage agreements today get reverse mortgages to supplement their retirement income. They use home equity built over the years and defer payment on the loan until they move out or die.
Reverse mortgage scams are being carried out by contractors, realtors and financial planners. In a typical reverse mortgage scam today, contractors are arranging for reverse mortgages to cater for expensive renovations or repairs. Contractors orchestrating reverse mortgage scams use their proximity/accessibility to convince unsuspecting senior homeowners, i.e., by using taglines such as; ”we are in your neighborhood for the next few weeks. We can do the work before we leave.”
Elderly homeowners are being promised big home renovation/repair jobs at incredibly low prices. The low cost causes many to overlook any warning signs. Since the scammers approach unsuspecting homeowners with home projects they have always wanted to undertake and the price is great, the homeowners ignore the fact that they might not know them.
Scammers are going as far as offering to get their victims reverse mortgages to pay for the job and even giving them the option of never having to pay (when payment is due after death). The main aim of the scammers is to have elderly homeowners sign away their equity in return for repairs or renovations which never get done but are paid off after death. Once a homeowner applies and gets the reverse mortgage, money goes to a contractor that didn’t do the job in the first place.
Finance professionals are also part of this scam since some have been recommending reverse mortgages to elderly homeowners as a means of buying life insurance, annuities, and stocks among other personal finance/investment products. Some unscrupulous financial professionals are convincing elderly homeowners to convert their home equity to capital gains or an income stream yet it is not prudent to borrow to invest if you are not a pro.
Realtors haven’t been left behind in reverse mortgage scams. Unscrupulous realtors are using reverse mortgages to purchase low-cost homes and flip them for a profit. Reverse mortgage scams usually leave retired homeowners with debt and homes worth much less than the actual purchase price. These homes find themselves in the market at incredibly low prices after which they are bought quickly by realtors and flipped for a profit.
It can be tough making ends meet after retirement. Reverse mortgage scams are packaged as great solutions for retired homeowners in need of some money for home repairs/renovations without having to pay anything. What’s more is the solution comes from familiar or trusted sources or is packaged as a great deal. The most important thing to note is; you can’t re-grow the equity in our home. Once you use it, it’s gone forever. If you get a reverse mortgage offer to pay for anything, it’s most likely a scam! It will definitely cost you (or those you leave behind). There are better solutions for retirement issues surrounding finances.
Keep up with more related news from Analyst of Finance: http://analystoffinance.com/2017/11/improving-housing-market-means-loans-continue-to-get-risky/
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