RISMEDIA, Dec. 13, 2007-Yesterday, the Senate Subcommittee on Aging heard testimony and considered evidence that details unlawful sales practices targeting seniors by Financial Freedom Senior Funding Corporation based in Irvine, California. The hearings, chaired by Senator Claire McCaskill (D-MO), came on top of lawsuits filed in California, San Diego involving the sale of Reverse Mortgage Products by Financial Freedom Senior Funding Corporation alleging excessive fees and use of proceeds to purchase additional financial products, such as deferred annuities.
During the course of the hearings, AARP unveiled a 200-page report which is an in depth study of the Reverse Mortgage industry, highlighting many of the sales practice abuses directed towards seniors.
Senate’s concern was raised by lawsuits against Financial Freedom filed in San Diego, California. Such as the one filed on behalf of Ernestine Boach who was allegedly conned into purchasing a reverse mortgage with exceptionally high fees and then sold several insurance and annuity products with the proceeds. The case, Ernestine Boach v. Financial Freedom Senior Funding Corporation was filed in San Diego Superior Court on January 11, 2007 and alleges that the Boach was advised to take out a reverse mortgage from Defendant Financial Freedom Senior Funding Corporation for $171,000 on the home she owned. The proceeds of which were to be used to purchase insurance products, including, a Fidelity and Guaranty deferred annuity with enormous surrender charges for $80,000, and a $44,350 immediate annuity to fund payments on a $250,000 flexible premium life insurance policy (also containing surrender charges).
According to her attorney, Boach followed the advice of her agents: Financial Freedom’s Vice President/Area Manager, Melanie Parks; and Penn Mutual’s Regional Manager (San Diego), Jason Barney who told Boach that the scheme would “not cost her a thing”.
Boach’s San Diego attorney Ronald A. Marron claims that this is an instance of a pervasive “equity stripping scheme” which involves Financial Freedom’s agents working in tandem with insurance brokers using reverse mortgage proceeds.
In response to letter directed to Fidelity by Boach, Fidelity defended the practice, stating that, “Utilizing a reverse mortgage can be an acceptable means to finance an annuity.”
According to Marron, in most situations the advice creates a “liquidity time bomb” because the senior is earning less income and cannot obtain funds in the deferred annuity without a huge surrender penalty, and must borrow more money. In addition, even if the senior had the financial resources, in many circumstances there are early payoff penalties on the reverse mortgage.
Marron says, “The practice of equity stripping is not merely unsuitable…it’s unconscionable and fraudulent.”