Beware of these reverse mortgage scams
Of all the financial crooks, reverse mortgage scammers are arguably the worst as they tend to prey on the elderly. They abuse their status as trusted advisers or lenders – or so-called professional entrepreneurs – to take advantage of financially precarious seniors. They convince people to take out a loan product that can be complicated even for knowledgeable people, let alone someone whose mental acuity may have waned with age. They then steal the proceeds, leaving the borrower with new debt on their home, or worse yet, no home at all.
Although there may be situations where a reverse mortgage is a good solution, there are many other times when this type of financing is a terrible choice. In this article, we’ll go over some common reverse mortgage scams so that you can avoid them and warn others as well.
Key points to remember
- Seniors can be targeted by scammers who convince them to take out reverse mortgages, loans designed for those with equity in their home.
- Homeowners should be wary of sellers and contractors who convince seniors to take out a reverse mortgage to get paid.
- Be careful when giving power of attorney to anyone who might take out a reverse mortgage on your behalf for their own benefit.
- Some real estate agents can convince seniors to take out reverse mortgages to buy a property without paying any money.
What is a reverse mortgage?
You’ve probably seen the television commercials promoting reverse mortgages as a financial panacea for senior homeowners. But do you really know what they are?
Reverse Mortgages are in fact loans available for owners aged 62 or over who have sufficient equity in their homes. These are relatively new financial products that provide options for older consumers if they need money in retirement.
Unlike a regular mortgage, the lender who makes payments to the homeowner with the house used as collateral for the reverse mortgage. the reverse mortgage balance is due when the owner dies or sells his house.
Fraud by suppliers and contractors
In contractor scam, unscrupulous renovation vendors and contractors are targeting seniors with a program that involves trying to sell them repairs, a home improvement project, or other home improvement service. When the target expresses concerns about the payment, the scammer has the solution: a reverse mortgage. This can be a great way for the seller or contractor to get paid, it is probably not in the best interest of the owner.
If you really need home repairs and have no other way to pay, a home equity loan or Home equity line of credit (HELOC) can be a much cheaper and more substantial option. Any home improvement supplier or contractor who suggests that you pay for the work with the proceeds of a reverse mortgage is not someone you want to work on your home. After all, their work can be as shoddy as their financial advice.
Fraud by relatives and others
Similar to vendor and contractor fraud, fraud by a financial planner or other investment advisor involves someone trying to sell you a financial product that you may not need and suggest you take out a reverse mortgage. If that person is unscrupulous or ill-informed enough to offer a reverse mortgage to finance a purchase of stocks, an annuity, or whole life insurance, they are probably not selling you something that is in your best interest.
Be careful not to give others the proxy (POA) on your business. This document allows its holder to manage financial affairs on your behalf, including taking out a reverse mortgage. Children and others who were entrusted with the management of their affairs by the elderly obtained reverse mortgages on behalf of the senior and then diverted the proceeds to their own accounts. Some crooks have even been successful in obtaining reverse mortgages for deceased relatives.
In this reverse mortgage talkative, crooked real estate agents hunt down seniors and trick them into taking out a reverse mortgage to buy a home cheaply, without paying any money. Unfortunately, these homes are often distressed properties that get a facelift but are really in disrepair.
Scammers help homeowners get a special type of reverse mortgage called a Equity Conversion Mortgage (HECM) to pay for the house and then find a way to divert the profits for themselves. Older people think they get housing because of a Housing and urban development (HUD) when they are actually taken to the cleaner.sese
Steal Peter and (not) pay Paul
One of the ways that scammers target unsuspecting homeowners is by convincing them to take out a reverse mortgage to help put their mortgages back into good standing or to pay for other expenses.
For example, a Florida man was sentenced to 22 years in prison and ordered to pay $ 1 million in restitution in July 2010 for fraudulent transactions involving reverse mortgages. The man marketed reverse mortgages to seniors, organized the closings, and then pocketed the money for himself.
The man also targeted homeowners facing foreclosure, convincing them to take out reverse mortgages to discount their outstanding loans. But instead of passing the money on to pay off regular mortgages, he would walk away with the proceeds, leaving homeowners to deal with default.sese
Other deceptive tactics
High pressure sales are not necessarily scams or frauds, but they are not in your best interest. Taking out a reverse mortgage requires careful consideration and a full understanding of the details and consequences. If a reverse mortgage lender makes you feel rushed, stressed, or uncomfortable, go out and find another lender, they aren’t hard to find. And if you feel any regrets after signing a loan, your right to retract allows you to cancel the loan within three business days of closing by notifying your lender in writing.sese
False or deceptive advertising that convinces a homeowner to get a reverse mortgage without fully understanding the implications, or where another solution could provide financial security without sacrificing the home, continues to plague the market. A report from Consumer Financial Protection Bureau (CFPB) found that many of the nearly 100 reverse mortgage listings it analyzed “contained confusing, incomplete and inaccurate statements about borrower requirements, government insurance and borrower risks.”sese
The office conducted focus group interviews with 59 homeowners old enough to qualify for a reverse mortgage. He found that celebrity spokespersons appearing in advertisements created a false sense of trust regarding reverse mortgages. Some advertisements did not make it clear that a reverse mortgage was a ready, while other announcements made it seem impossible for a borrower to lose their home. This is not true. Some advertisements gave the impression that reverse mortgages were a government-run program, which is also not true, although the most common reverse mortgage, the home equity conversion mortgage, is insured by the Federal Housing Administration (FHA).sesesese
The bottom line
Law enforcement sometimes fails to catch or adequately punish reverse mortgage fraudsters. As a result, some crooks have been able to commit reverse mortgage frauds on multiple occasions, accumulating dozens of victims. Be especially wary of anyone who approaches you about a reverse mortgage or forces you to close the deal.