Every year elderly Americans lose billions of dollars to fraud and other types of financial exploitation. Unfortunately, the elderly make very attractive targets for scam artists and other bad actors. They often have an income, savings, or home equity, and are generally more vulnerable to being taken advantage of than younger adults. According to the Federal Trade Commission, fraud complaints to its offices by individuals aged 60 and over rose by at least 47% between 2012 and 2014. A 2014 study commissioned by the Department of Justice found that, out of its 2000 respondents (all over 60), nearly 6 out of 10 had been targeted by a fraud attempt during the year prior to the study.
A common way that the elderly are financially exploited is through predatory mortgage loans. An elderly homeowner who is equity-rich and cash poor is a particularly attractive target for predatory lenders. Many senior adults are on a fixed or limited income, and thus may need credit to pay for medical care, taxes, home repairs, and other expenses. In these cases, the senior’s home equity is often their primary or only financial asset. In a situation where an elderly homeowner is in urgent need of cash, predatory lenders may swoop in and offer “easy” credit and loans. Often these credit offers and loans are packed with high interest rates, excessive fees and costs, credit insurance, balloon payments, and other egregious terms. However, once you know what to look out for you can identify predatory lending practices and avoid them. Below are some signs that may indicate you are dealing with a predatory lender.
- Home improvement
A common scam involves unsavory residential contractors steering elderly homeowners to predatory lending companies by convincing the homeowner that financing is needed to pay for additional home improvements. Some contractors actually get a commission from the lender for brokering the loan.
- Excessively high closing costs and fees
Watch for fees or costs that are greater than the actual cost of an item or service provided.
- Balloon payments
A balloon payment means there is a large lump sum of money due at the end of the loan term. If the payment can’t be met the house will go into foreclosure, unless the homeowner refinances the loan (often at an excessive cost that further profits the lender).
- Refinancing unsecured debt
Predatory lenders will sometimes encourage homeowners to consolidate unsecured debt (such as credit cards or medical bills) into the mortgage loan. The lender will claim that this will lower monthly payments and increase tax deductions. What they won’t say is that the higher home-secured debt burden increases the risk of foreclosure if the homeowner should have financial difficulties.
Glenn Matecun proudly serves the citizens of Michigan in the areas of elder law, estate planning, and special needs law. Visit our website to learn more and schedule a consultation.