Reverse mortgage scams

At first glance, a reverse mortgage may seem like a great idea, especially for eligible seniors who need cash and want to stay in their homes for as long as possible. You will have access to the equity of your home but will not have to make any kind of payment, or pay interest. However, this type of loan must be repaid if you sell your house or if you die. Let’s examine the pros and cons of reverse mortgages and see how some fraudsters take advantage of unsuspecting seniors.

What is a reverse mortgage?

A reverse mortgage is the opposite of a typical mortgage in that you are not required to make regular payments. With a typical mortgage, you borrow a specific amount of money. You pay interest to borrow money, make regular payments to repay the loan, and acquire capital when you finish paying the mortgage.

This is not the case for a reverse mortgage. With a reverse mortgage, you must already own a home and have accumulated a lot of equity (equity is the share of the value of a house without debt) . You are then loaned a specific amount based on the equity you have, either in several phases or in a lump sum. You will not need to make any payments and the accrued interest will be added to your loan balance. This means that your mortgage will increase steadily over time instead of decreasing. Once the homeowner dies, moves or the house is no longer their principal residence, the reverse mortgage must be repaid. As a rule, this is done by selling the house.

Prerequisites for a reverse mortgage

Mortgages are not available for everyone and they are not a good option for everyone either, regardless of whether or not you qualify. Here are some things you should keep in mind when assessing whether or not a reverse mortgage is right for you and your financial situation.

  • In Canada, reverse mortgages are only available for those 55 and over.
  • You must already own a house.
  • You must have paid a large portion of your original mortgage and therefore accumulated equity.
  • The assessed value of your home and its location will be taken into consideration.
  • In Canada, you can only access a reverse mortgage up to 55% of the value of your home.

Benefits of a reverse mortgage

While a reverse mortgage may not be the best option for all homeowners, there are actually several benefits that you can benefit from if you are able to qualify.

1. You will have no regular loan payment to make.

2. You can transfer part of the value of your home in cash without having to sell or move.

3. The money you receive through a reverse mortgage is tax-free.

4. The money you receive will be considered income but will not affect Old Age Security (OAS) or the Guaranteed Income Supplement (GIS) you receive.

5. You remain the owner of the property.

6. You will have three options to choose from when deciding how you want to receive your money:

  • A lump sum payment
  • Payments planned to provide you with a regular income
  • Or a combination of these two options.

Disadvantages of a reverse mortgage

As with any type of financial product, there are disadvantages.

Depending on your lifestyle and financial situation, consider the following disadvantages before making your final decision.

  • This type of mortgage usually comes with a high interest rate.
  • The equity you have accumulated in repaying your mortgage will decrease while the interest on your reverse mortgage will increase.
  • If you die or decide to sell your home, your reverse mortgage plus accrued interest will have to be repaid within a specified time.
  • Reverse mortgages are very expensive, including:
    • A high-interest rate
    • Property Assessment Fee
    • Registration Fees
    • Closing costs
    • Legal fees
    • You will have a penalty if you sell your home in the first three years following the acquisition of a reverse mortgage.

Reverse mortgages and scams

A reverse mortgage is a perfectly legal product that can help people in specific financial situations, can get them the money they need to cover an unexpected expense or even help in the cost of daily living.

Unfortunately, there are people who have decided to take advantage of those who need it and have created several reverse mortgage scams. Let’s take a look at three of the most common reverse mortgage scams.

Illegal information fees

It is important to know that there are several types of fees associated with the application and approval of a reverse mortgage, namely valuation, legal, closing, and administrative fees. But when a reverse mortgage provider asks you to pay fees to get information about the product they provide, it is a scam.

Transfer of title

Scammers seeking to take advantage of naive elders will work to artificially inflate the value of their home or convince them that their home is worth much more than it really is. Once they have done this, the crooks will then help the owner to get approved for a reverse mortgage, to convince them to transfer title to them.

Fraudulent document

Scammers often come forward as legal representatives of financial institutions and ask seniors to send documents and even money to help approve the reverse mortgage. A legal reverse mortgage provider or financial institution will never do so, all documents or fees will only be processed after loan approval.

Seven toxic habits with the money you should leave

Experts advise not to be guided by emotions

  • Loans to family and friends can damage relationships and pockets

interes-de-demora-y-legal-del-dinero

Bad habits related to money can be exceptionally difficult to break since in many cases they are associated with a problem of ignorance about personal finances.

Even when we have the best intentions and a strong financial plan, these ingrained rituals will take us out of our way. For this reason, MarketWatch has published a list of the seven bad economic habits that we must break.

1.- EMOTIONAL SPENDING

Using purchases to deal with other problems is usually common, but emotional impulses do not fix anything

Using purchases to deal with other problems is common, says Gretchen Cliburn, director of financial planning for BKD Wealth Advisors, in a statement to MarketWatch. But emotional impulses do not fix anything, but, on the contrary, tend to make things worse.

To avoid making impulsive or emotional purchases, a series of basic rules must be established. For example, buy things only from a ‘wish list’ that you have previously done in a quiet moment, not when you try to distract yourself from anxiety or sadness. It also advises waiting 24 hours before going ahead with an unplanned purchase.

2.- PAY MONEY

Although it is admirable to give help to others, leaving money to friends and family can damage your pocket and your personal relationships. It can be difficult for the other person to return the loan, which could create conflicts and resentment.

Instead of offering a loan, there are many ways to help a friend in a situation of need and maintain your relationship: find ways to help your friend find solutions to their problems that do not involve giving money. For example, you can offer to take it until the car is fixed or suggest ways to reduce your expenses.

If you still want to offer money, consider it a gift. This way, you will not feel resentful when your friend buys clothes and shoes instead of giving it back to you. If you can not afford to give money as a gift, it is better not to lend it.

3.- ALWAYS PAY THE ACCOUNT

For some people, being able to pay for a friend’s dinner or a round of drinks is a source of pride. But if you are going to go into debt or a very large expense, you have gone too far and can cause your family and friends just want to go out with you because you invite them.

4.- COMPARE YOUR FINANCIAL SITUATION WITH THAT OF OTHERS

Many people measure success by the size of their homes or the cars they drive, but this assumption is false. Big houses and expensive things only indicate how some choose to spend their money, not how much they have, says Cliburn.

The first thing is to determine what is important and set goals to ten, twenty or even fifty years. Maybe you want a house in a certain area or a comfortable retirement. “Once you’ve identified what is most meaningful to you, make spending decisions based on it,” he recommends.

5.- SPEND ALL YOUR INCOME

Everyone has to pay bills every month, but it is up to each one to decide what they spend the money that remains. Choosing to spend everything can easily become the norm, which usually means that there is no cushion for contingencies or retirement savings.

When someone spends everything they earn, they usually do not have a budget, says Derek Gabrielsen, an adviser to Strategic Wealth Partners, who calls this behavior “the big mistake people make.” Thus, he recommends writing a budget that includes monthly provisions for emergencies and for retirement.

6.- DEPENDING ON CREDIT CARDS

At the end of 2015, the debt of the Americans with the credit cards reached 900,000 million dollars, according to the analysis of CardHub from the data of the Federal Reserve. If you have become accustomed to living with debt on your credit card. To break the cycle of indebtedness, one must stop using credit cards and mark a strict budget.

7.- IGNORE THE OBVIOUS

If you avoid looking at your credit card charges or checking account balances, you are living in an ‘economic coma’. You may think that, if you really do not know how bad it is, the problems will go away, but it is not true.

It’s time to ask for help from friends or family, a counselor or a financial planner to evaluate your financial situation and develop a plan for you. To begin, make sure you know the amount of debt you have or your monthly commitments.

Missing mortgage payments and foreclosures

Missing a mortgage payment or being unable to finish repaying it is obviously the last thing you want to happen, but in reality, financial problems arise and sometimes managing them can be difficult. You should not, under any circumstances, ignore the problem if you find yourself in such a situation and you can not make your mortgage payments. Banks are often less willing to renegotiate your mortgage if you ignore them. Instead, do the following:

Communicate immediately with your mortgage lender; even if you are not 100% sure that you will not be able to make your payment.

  • Be as honest and open with your lender as possible, then tell what’s going on so they can find a plan to help you.
  • If you are given another chance, work as hard as possible to take full advantage of this second chance.
  • Cooperate with everyone you do business with.

Whatever the reason, if you can not make your mortgage payments, you must be prepared to hear the word entered. Although most lenders do not usually want to go through the foreclosure process of your home, if you do not make your mortgage payments, it’s their legal right to do so and they will. Instead of waiting for the inevitable to happen, you should take responsibility, inform yourself and learn about the process of entering. Once you understand the process as a whole, you may be able to know not how to avoid it but at least how to make the process easier for everyone involved.

What is a seizure?

A seizure is a legal proceeding taken against a mortgage borrower who stops making payments on his loan. Since the home he bought with a mortgage acts as collateral for the mortgage, it can be taken back and sold by the lender if the borrower stops making payments. Since foreclosure is a legal process, the lender must first obtain court approval to repossess a home. Once the house is repossessed, it is usually sold so that the lender can recover the money he is owed.

The process

A seizure is a serious problem and it could happen if you do not make your mortgage payments on time, but it’s important to understand that the foreclosure process will not happen right away. Here’s what you can expect once you stop making your mortgage payments:

  • You do not automatically lose your home after a single missed payment.
  • Your lender will contact you immediately. He will want to help you understand how to continue making payments.
  • A seizure is a lengthy and expensive process; therefore, your lender will probably not offer it right away.
  • You will start receiving letters from your lender. These letters usually come after 30 days, 60 days and 90 days.
  • Once you have reached 90 days without being able to make your mortgage payments, you will be late.
  • If you do not want to get in touch with your mortgage, you should expect the foreclosure process to begin.

In Canada, the seizure process varies from province to province. It is therefore important that you take the initiative to be informed about this and how seizures are made in the province where you live.

Generally speaking, in Canada, lenders are able to recover their money in two main ways; you should expect to go through one of the following procedures.

Judicial Sale

Judicial sale or judicial seizure is heavily involved in the legal system; a seizure is conducted under the direction of the Canadian judicial system. The process is usually slow and can take up to 6 months. Once the foreclosure order is given to the lender, the property of the house is automatically transferred to the lender. This means that you will receive all the capital.

The Judicial Sale or Court Seizure is used in the following provinces:

  • British Columbia
  • Alberta
  • Saskatchewan
  • Manitoba
  • Quebec
  • New Scotland

Power of sale

This process begins when the lender sends the borrower a notice and provides him with a 35-day redemption period. During these 35 days, the borrower can start making payments again and get back on track. If a borrower is able to do so, the power of sale will not be continued, but it will have to cover some costs associated with the power of sale.

The wind power allows the lender to sell the house he or she has seized without court involvement. This process is much faster than the court seizure.

The power of sale is used in the following provinces:

  • Newfoundland
  • New Brunswick
  • Prince Edward Island
  • Ontario

Dealing with an imminent seizure is not easy, but if you get ready, get in touch with a mortgage lender and are as cooperative as possible, you will go through the process.