It's this "equity-rich, cash-poor" position that makes the elderly highly susceptible to financial schemes targeted at bilking them out of their home values via unscrupulous home-equity loans. Finding themselves in need of expensive home repairs or cash for everyday living, seniors can all too easily become prey to schemes promising easy access to home equity. Unfortunately, these deals later prove to cost a lot more than their original price tags.

Fortunately, as a confidante to these customers, real estate professionals are in a position to play a valuable role in helping to identify and avoid these "home schemes."

Why the Elderly
There's no doubt that the elderly are often the prime targets of fraudulent financial activity, from those well-publicized telemarketing schemes to more sophisticated forms of deception such as home-equity fraud. The American Association of Retired Persons (AARP) conducted an investigation aimed at uncovering finance fraud and discovered that almost 80 percent of the victims were older Americans.

Scam artists take aim at the elderly for many reasons. According to the AARP, senior citizens can be easily deceived when approached through most any medium -- from the telephone to the Internet -- thanks to his or her often outgoing and trusting nature.

What to Look For
The key to protecting your elderly clients is the ability to recognize the signs that they have placed their property ownership in danger via one of these loan or contract situations. Here are just a few of the warning signs that your elderly clients may have gotten themselves into more than they bargained for from a home financing situation.

• Beware the balloon -- A home-equity loan carrying a balloon payment and its manageable monthly payments can seem quite attractive to a senior citizen. But the large payment at the end of the mortgage may be realistically unaffordable for many older Americans. Independent mortgage lenders may entice clients into these situations with a purely verbal, unenforceable promise that they can refinance when the balloon comes due.
• High rates = red flags -- For some senior citizens, the last recollection of a high rate on a home-equity loan may from the late 1980s, when interest rates of 15 percent were not uncommon. This can make it easy for fraudulent lenders to market similar rates to these clients today. Though rates have been climbing as of the first half of year 2000, anything over 11 percent is probably too high.
• Closing costs that can "eat" the loan -- In a questionable loan situation, it's not uncommon for closing costs to total almost one-third of the loan. In fact, the AARP tells us that high costs can be defined as total fees and points greater than 8 percent of the total loan amount -- or $441, whichever is greater.
• Little or no contract work completed -- In classic contractor fraud, the home contractor assists the client in obtaining a loan to pay for the home improvements, then either doesn't complete the work or does a shoddy job. In these cases the lender may then give the contractor an additional kickback for setting up the loan.
• A lien on the home -- Here's a scary situation: Even if a lien isn't written into a home improvement agreement, the contractor may still be able to put a lien on the house. In a dispute over the quality of work, for example, a mechanic's lien gives an unpaid contractor, laborer or supplier the right to file a lien against property to extract payment from a client to recover the value of his work.

What You Can Do
In your conversations with older clients, perhaps the most important fact to emphasize is that any situation in which a client cannot repay a home-equity loan could eventually result in foreclosure.

It is also wise to talk with these clients about applying everyday consumer smarts in order to sidestep the sleazy home loan. For example:

• Don't automatically trust a door-to-door sales repair pitch
• Avoid telephone solicitations for loans
• Carefully check at least three references of any contractor
• Consult the Better Business Bureau (BBB) at www.bbb.org/reports
• Comparison-shop the loan or contractor against others
• Get all work detailed in writing -- and reviewed thoroughly -- before signing any contract

Of course, you may find yourself in the position to help the client take action after he or she has made a questionable deal. If the agreement was made "in the home" -- via either a door-to-door or a telephone solicitation -- the client can legally cancel the agreement via written notice within three business days. If it is too late for that, it would not be overreacting to contact the police, the state consumer protection, the attorney general's office and the BBB right away, especially if a contractor is involved. These independent mortgage lenders tend to flee rather quickly if they glean a hint of their being discovered. Lastly, always be sure the client's lawyer is contacted for advice.

Though today's senior citizens are often more active, more connected and less cloistered than individuals of previous generations, many are still targeted by some very convincing home-loan schemes. It's a good idea to address these issues even with savvy clients, before trouble arises. A home is always a comfort, and a senior losing his or her home is a tragic, yet fortunately avoidable situation.

For more on the warning signals mentioned above, check out the NCLC at www.nclc.org/consumer/foreclose.html.

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