Elder abuse is on the radar again, but this time it’s in a brand-new area… reverse mortgages.
Most people know that if an elderly person is going to be ripped off, it will be done by someone they know—typically a banker, doctor, lawyer, family member, or caregiver.
Now there are three new groups to add to the list—contractors, financial planners, and realtors—and they all deal with reverse mortgages.
Contractors are arranging for reverse mortgages to pay for extensive repairs or renovations. This is an adaptation of the traveling repairman con… “We’re in your neighborhood and can do this work for you while we’re here.”
The con starts with an offer to do big jobs for an unreasonably low price. The fact that you don’t know them or they haven’t been recommended by someone you know should be the first red flag. But the low price causes many to ignore the warning signs.
The new twist is to offer to have another division of their company get you a reverse mortgage to pay for the job, and you never have to pay for it. The payment doesn’t occur until after you pass away.
The situation really goes downhill when the homeowner applies and receives the reverse mortgage, and the money goes to the contractor who doesn’t do the work. You’ve signed away the equity in your home and didn’t even get the repairs done.
The other new twist is for financial professionals to recommend a reverse mortgage to buy an annuity, life insurance, or even stocks. The idea is to convert the equity in your house into an income stream or capital gains.
This one is simple! Never borrow money to invest. Yes, some pros do it all the time—it’s called leverage—but you’re probably not a pro.
The third one involves unscrupulous realtors and taps into the house-flipping rage: Use a reverse mortgage to buy a low-cost home and flip it for a profit.
While it seems legitimate on the surface, the homes for sale are usually distressed and can’t be flipped for the purchase price. The retired person finds himself on the hook for a home worth much less than what he paid and the reverse mortgage.
I know it can be tough to make ends meet and a few extra, easy dollars look awfully good. And making those expensive repairs to our homes for no money out of pocket seems like a good idea.
But none of us have the time to replace the money we have worked hard to put aside for our retirement, and we certainly won’t be able to regrow the equity in our homes. Once it’s gone, it’s gone forever.
If anyone comes to you with an offer that includes a reverse mortgage to pay for anything, it is very likely a scam. It will cost you money, not the other way around.