Reverse mortgages are a useful tool for seniors who often have significant equity in their homes (they have often made significant progress in paying off their homes) and want to be able to access that money to convert it into supplemental income. This is a fairly complex process, leaving the door open to scam artists and unscrupulous lenders to target seniors and mislead them – to the point where many people have lost their homes. Here’s some essential information about identifying and avoiding these dangerous scams, from a leading elder law attorney in New Jersey.
How a Legal Reverse Mortgage Works
Essentially, this works in the reverse to a regular mortgage – instead of taking out a loan and paying it back, the lender makes payments to you. The most common reverse mortgage product is the Home Equity Conversion Mortgage (HCEM), issued by private lenders and insured by the Federal Housing Administration. To qualify, you have to meet certain criteria including being a homeowner of 62 years or older, have a certain amount of equity in your home, and that you reside in the property that you’re applying for. There is a limit on how much of your equity you can access through this loan – currently set at $636,150.
How to Spot Reverse Mortgage Scams
Keep your eyes peeled for these warning signs:
- High-pressure sales tactics: Some mortgage brokers use strong-arm tactics to sign people up for reverse mortgages, whether they need them or not – and they specifically target the elderly. Unsolicited visits and phone calls by mortgage brokers should be ignored. According to the FBI, other sales tactics include approaching seniors through local churches and investment seminars.
- Misrepresenting the risk: With any loan comes risk – never trust someone who offers a reverse mortgage and tells you that there are no risks involved. All reverse mortgages become due and payable at some point and this can mean you lose your home – if the property is transferred or sold, if the borrower moves out of the home, or if the borrower doesn’t meet the mortgage obligations (insurance premiums, property tax payments etc.)
- Misleading advertising: A reverse mortgage is not free money or free income – it is still a loan with very strict conditions, fees and structure. Any advertisement that states otherwise this is misleading and designed to take advantage of people who don’t have a clear understanding of loan structures.
- Encouragement to take out a lump sum early: Taking out a lump sum in your early 60s often leads to the amount being used up quickly – leaving you with nothing in your later years. As a result, many seniors don’t have the money to pay the insurance and property taxes required by the lender, which forces the loan to become due and your home into foreclosure.
If you are considering a reverse mortgage, it’s always best to do a lot of research on the risks and benefits yourself and speak to your elder law attorney or a trusted financial advisor before taking on a potentially risky loan. This way, you get the right information and the best financial program for your needs.
Consult with a Leading Elder Law Attorney in NJ Today
Experienced in elder law, compassionate and committed to his clients, you’ll receive the highest quality legal expertise and guidance you need from Frank R. Campisano. In addition, you can also prepare additional estate planning documents, such as your Last Will and Testament, Healthcare Proxy/Medical Directive, Power of Attorney documents and trusts. For more compassionate legal guidance and a free consultation, please contact us or visit our website at http://www.scclegal.com/