Reverse Mortgage and Annuities Fraud
Reverse Mortgage and Annuities Fraud
According to California law, lenders should not require applicants to purchase annuities in order to get reverse mortgage loans. This practice has been abused in California, and it is important to recognize and prevent reverse mortgage annuities fraud in your household and among your loved ones. Elders may be particularly at risk for reverse mortgage and annuities fraud for three reasons:
- Elders may be more likely to try to obtain reverse mortgages;
- Elders could be viewed as “targets” by perpetrators of this fraud, who take advantage of the elders’ trust and vulnerability;
- Many annuities are particularly unsuitable and potentially harmful to elders.
What is the law surrounding reverse mortgage and annuities?
California Civil Code Section 1923.2(i) states that:
“A lender or any other person that participates in the origination of the mortgage shall not require an applicant for a reverse mortgage to purchase an annuity as a condition of obtaining a reverse mortgage loan.”
This means that annuities are not and should not be part of a reverse mortgage application. Any individual who tells you that you must complete or purchase an annuity in order to get a reverse mortgage is not acting in accordance with the law. Any institution or individual who tries to force an elder to purchase an annuity as part of the reverse mortgage process may be committing financial elder abuse.
Sellers of annuities as part of reverse mortgage loans have targeted elders with deferred annuities and equity-indexed annuities: two types of annuities that may be especially detrimental to an elder’s financial well being.
In some cases, the annuity purchase is not required in order to obtain a reverse mortgage loan, but is encouraged by the lender. Yet, there are several reasons for elders and loan applicants to strongly consider not purchasing an annuity.
California Civil Code Section 1923.5 includes a warning to elders that:
“Senior citizen advocacy groups advise against using the proceeds of a reverse mortgage to purchase an annuity or related financial products.”
Furthermore, this section of the California code requires that the above text and a further advisory be made available to the loan applicant in “conspicuous 16-point type or larger” before the lender counsels the loan applicant about how to obtain the loan.
Finally, the lender is required to talk to the loan applicant about the consequences of purchasing an annuity or other insurance product with the loan. In addition to discussing the consequences of an annuity purchase, California law further requires a reverse mortgage lender to discuss the following issues: unexpected medical issues that may cause the loan-taker to leave their house; other options besides reverse mortgages that may be less costly and more suitable for the prospective borrower; the effect and consequences of loan repayment on other residents if the borrower/s die or permanently leave their home; consequences of the loan that may impact tax obligations and equity loss in the home. These issues should all be listed in a checklist that the prospective borrower can read and sign.
Why are annuities potentially harmful to elders?
There are several types of annuity policies, many of which may be inappropriate for elders. In most annuities, the purchaser places a premium in a policy in exchange for payouts to be received at a future date. Unfortunately, many annuity policies contain hidden charges and technicalities that make it difficult for a policyholder to withdraw and use their funds once they have been placed in the annuity.
Two types of annuities policies associated with reverse mortgage annuities fraud are deferred annuities and equity-indexed annuities. Deferred annuities contain clauses that make it such that the purchaser’s premium is not paid out for a fixed amount of time into the future – sometimes as many as 10-20 years – and then at a lower rate for the following years. It is often impractical for elders to wait so long before they have access to their funds.
Equity-indexed annuities’ payouts depend on the performance of the stock market, and as such can be highly unpredictable. Some equity-indexed annuities, like deferred annuities, make the purchaser wait for extremely long periods of time before they start receiving payouts. Both deferred and equity-indexed annuities can contain exorbitant surrender fees and hidden charges. For more information on different types of annuities, annuities fraud, and unsuitability of annuities for elders, consult the Annuities Fraud section of The Evans Law website.
What help is available for victims of reverse mortgage and annuities fraud?
Evans Law Firm, Inc. in California litigates on behalf of victims of annuities fraud and elder financial abuse.
What are some companies that sell annuities to senior citizens?
Genworth Financial sells both annuity policies and provides reverse mortgages to seniors.
The following companies are some top sellers of variable annuities:
- ING
- Jackson National Life
- Lincoln Financial Group
- MetLife Inc.
- Prudential Annuities
- Sun Life Assurance Co. of Canada
- Symetra Financial
- TIAA-CREF
Sources:
California Civil Code Section 1923.2 -law.onecle.com/california/civil/1923.2.html
California Civil Code Section 1923.5 -law.onecle.com/california/civil/1923.5.html
