ATTORNEY NEWSLETTER
Lenders Cannot Cross-Sell Annuities
Watch For Illegal Sales Tactics
Remedies For Injured Seniors
California seniors with substantial equity and significant appreciation in their homes but fixed incomes may be approached by lenders to consider getting cash by taking out a reverse mortgage on their home. The title “reverse mortgage” is itself somewhat misleading – you ARE borrowing when you take out a reverse mortgage. The origination fees and subsequent interest rates are steep; at maturity or death or anytime you move out, the home belongs to the bank, not you or your estate. In fact, upfront costs can run as high as $15,000 to $20,000 on a $200,000 home. These high origination costs can be financially disastrous, especially for those who don’t plan to stay in their homes long or want to borrow only a small amount. Other serious downsides include accumulating interest, increased ongoing costs of maintaining your home, and the need to move for medical or other reasons. A reverse mortgage requires you to maintain the residence as your principal home and keep property tax and insurance payments current. One of the angles lenders employ when selling reverse mortgages is to entice the homeowner to purchase an annuity when they take out their reverse mortgage. The recommendation (or sometimes, requirement) was that the homeowner use the reverse mortgage proceeds to purchase an annuity issued by the lender, one of its affiliates or a “referred” carrier. This is not legal in California. If you are over 62 and live in Alameda County or elsewhere in Northern California and have been sold an annuity in connection with a reverse mortgage, call us today at 415-441-8669 (or toll free at 1-888-50EVANS).
Watch For Illegal Sales Tactics
Reverse mortgages are complicated financial instruments, and there are lenders and originators who will take advantage of seniors concerned about future income levels. Watch for these scams in particular:
- A sales representative tries to persuade you to use your reverse mortgage for estate planning and invest the money into an insurance product or annuity promising high return as part of an estate.
- A sales representative suggests using cash from a reverse mortgage to buy another property, fix it up and resell it quickly for a profit.
- A person knocks on your door offering a free consultation for handyman services. The inspection reveals major repairs and the fraudster suggests using a reverse mortgage to pay for the repairs. The reverse mortgage loan officer may be involved in the scam to earn a sales commission on the reverse mortgage.
- A reverse mortgage loan officer may try to push you to use a “special” reverse mortgage loan program that’s not insured by the Federal Housing Administration (FHA), on the premise that the costs are cheaper and the loan is easier to get approved and they’ll get you your money faster.
Protections For Seniors
The California Civil Code expressly prohibits the cross-selling of annuities with reverse mortgages. Cal Civ. Code § 1923.2(i)(1). You cannot be forced – or enticed – to use the proceeds of your reverse mortgage to purchase an annuity. Once you qualify and subsequently close on a reverse mortgage, what you do with the proceeds is up to you. You can’t be coaxed into purchasing an annuity or any other insurance product. This is not the only protection you have under California law, however. You also must undergo mandatory counseling (see the checklist of topics in the attached article) and be given a seven-day “cooling off” period after counseling to decide is a reverse mortgage is right for you. If you are considering a reverse mortgage, please seek out the advice of a professional not interested in the transaction. These are dangerous and expensive products and you need to learn all about them before you move forward in considering one. Don’t trust the lender to give you the facts and do not allow the lender to attempt to “tie in” other products to your loan. If you’ve already taken out a reverse mortgage and were sold an annuity at the same time, you may be a victim of financial elder abuse, entitling you in certain cases to extra damages and recovery of attorneys’ fees and expenses incurred by you in bringing your case. Cal. Welf. & Inst. Code § 15657.5.
Contact Us
If you or a loved one is a victim of annuity or reverse mortgage fraud in Alameda County or elsewhere in Northern California, contact the Evans Law Firm elder attorneys at (415) 441-8669, or by email at <a href=”mailto:info@evanslaw.com”>info@evanslaw.com</a>.
