Reverse mortgages are available to homeowners aged 62 and older, offering a way to leverage home equity for financial support in retirement. However, these loans have attracted scammers preying on older Americans, siphoning off their money, equity, and sometimes their homes.
Scammers are skilled at gaining a homeowners’ trust and exploiting their vulnerabilities. They misrepresent the benefits of reverse mortgages while concealing the full costs. Some reverse mortgage scams manipulate elderly homeowners into unnecessary and costly repairs.
Scammers typically target those who don’t ask too many questions, often focusing on individuals with limited English proficiency or older homeowners they can easily confuse. The consequences of these reverse mortgage scams have left many homeowners without their properties.
Are reverse mortgages legit?
With the growing complaints about reverse mortgages, people are asking, are reverse mortgages a scam? Reverse mortgages are legitimate financial instruments offered to homeowners who are 62 years or older. These loans allow eligible homeowners to borrow against the equity in their homes, providing a source of income, typically tax-free, to supplement their retirement finances. The legitimacy of reverse mortgages is well-established, and they can be a valuable financial tool for seniors looking to access their home equity without selling their homes.
However, despite their legitimacy, some borrowers fall victim to reverse mortgage scams. Scammers set their sights on reverse mortgages for various reasons:
- The victims primarily consist of elderly individuals, a demographic scammers view as susceptible targets. While younger spouses may be involved, the primary borrower for a Home Equity Conversion Mortgage (HECM) must be 62 or older.
- The potential for scams has grown significantly due to the record-high home equity in the United States, often representing the majority of an average American’s net worth. Reverse mortgages are less common than traditional mortgages, often characterized by intricate and perplexing details, creating ample opportunities for exploitation by scammers.
- Fraudulent fees can be easily manipulated or inflated. Various fees associated with reverse mortgages, occurring before, during, and after the loan process, can be artificially increased or introduced. Because reverse mortgages do not necessitate regular payments, scammers have an opening to overcharge unsuspecting borrowers.
- The risk for scammers is relatively low, as law enforcement sometimes struggles to apprehend or adequately penalize reverse mortgage scammers, allowing them to engage in fraudulent activities repeatedly. In some cases, any fines imposed are perceived as merely the cost of conducting their illicit business.
Scammers employ various tactics in reverse mortgage scams, including misrepresentation, hidden costs, pressure tactics, targeting confusion, identity theft, and even home theft. They pose as trustworthy advisors, mislead homeowners on benefits and costs, pressure them into unnecessary expenses, and exploit vulnerabilities, resulting in severe consequences such as home loss.
Beware of These 6 Reverse Mortgage Scams
Each reverse mortgage scam is unique, carefully adapted to the individual homeowner’s situation. However, several common reverse mortgage scams include the following:
1. Foreclosure Scams
These mortgage scams target seniors on the brink of foreclosure, offering false promises of relief through a reverse mortgage. While a reverse mortgage can pay off an existing mortgage, it entails high closing costs and additional fees, and homeowners remain responsible for property taxes, insurance, and maintenance costs. Failure to keep up with these expenses can still result in the loss of the home, potentially leading to reverse mortgage foreclosure.
Seniors facing financial difficulties should explore alternatives like loan modification, which could extend the loan term or reduce interest rates without the need for refinancing. This approach can lead to a more manageable monthly payment.
2. Equity Theft Scams
Equity theft scams are orchestrated by a collaboration of dishonest individuals, including appraisers, attorneys, and loan officers. Their scheme involves inflating a home’s appraisal value, creating a false impression of greater equity for the homeowner. Subsequently, these scammers persuade the homeowner to obtain a reverse mortgage to access this purported high equity. They manage the entire process, finalize the loan, and then abscond with the loan proceeds. This leaves the borrower with minimal to no remaining equity and little cash, after accounting for closing costs and various fees.
3. House Flipping Scams
House flipping scams involve scammers persuading senior homeowners to obtain a reverse mortgage on their current property. These scammers then use the loan proceeds to purchase another property, typically at a low cost. They may make superficial improvements to make the property seem like a worthwhile investment. It’s only after the transaction is completed, and the scammers have pocketed the proceeds, that the new homeowner discovers the newly acquired property is in severe disrepair.
4. Fraud by Relatives and Others
This reverse mortgage scam variant centers on a deceitful financial planner or advisor who convinces you to acquire a reverse mortgage even when it’s unnecessary. They may propose managing your loan proceeds for investment purposes but then divert the funds for their personal gain.
Regrettably, this scenario can also involve relatives of the borrower. A family member may persuade you to obtain a reverse mortgage and surrender the proceeds to them. Alternatively, they might exert pressure to grant them power of attorney, granting them control over financial decisions, including obtaining a reverse mortgage and channeling the loan proceeds into their own accounts.
5. Fraud by Contractors
Be cautious if a contractor suggests a reverse mortgage for home projects. While some use reverse mortgages for planned renovations, beware of unsolicited contractors claiming issues with your home. They’re often unlicensed and overcharge unnecessary repairs. These contractors may misrepresent reverse mortgages as “free money,” but they involve fees and costs.
For home improvements using home equity, consider a cash-out refinance with a reputable lender. Always choose licensed contractors with good reviews for quality work.
6. Veteran Reverse Mortgage Scams
It’s important to note that the VA does not presently provide any reverse mortgage loans, and there are no reverse mortgages designed exclusively for veterans. If someone is attempting to market a reverse mortgage tailored for veterans or one endorsed by the VA, it is a mortgage scam.
For veterans encountering difficulties with monthly mortgage payments, a VA refinance, such as the VA Interest Rate Reduction Refinance Loan (IRRRL), might be a viable option to reduce the interest rate and make monthly payments more affordable.
Protect Yourself from Reverse Mortgage Scams
Protecting yourself from reverse mortgage scams is important. Here are key steps to safeguard you from mortgage scams.
- Speak with a reverse mortgage advisor. Consulting a reputable reverse mortgage advisor is essential to ensure you make informed decisions and avoid falling victim to scams. They can provide guidance on legitimate options and potential red flags, helping you distinguish between trustworthy lenders and real estate investment loan providers.
- Do not pay anything upfront. Be cautious if asked for upfront fees or charges. Legitimate reverse mortgage processes typically do not involve such payments. Scammers often exploit homeowners with a reverse payment scam.
- Do not relinquish your deed. Never hand over your property deed to anyone, as this can lead to potential fraud and loss of homeownership. Keep control of your property title.
- Do not sign blank documents. Avoid signing any blank or incomplete documents. Ensure that you fully understand and review all paperwork before signing to prevent any unauthorized alterations or misuse of your signature.
- Talk to your lender. If you have doubts or concerns during the reverse mortgage process, reach out to your lender directly. They can address any questions or issues, ensuring the legitimacy of the transaction.
What can you do if you are a victim of reverse mortgage scams?
If you’ve fallen victim to reverse mortgage scams, taking immediate action is vital to minimize the damage and protect your financial well-being. Here are some steps to consider:
- Use your right to rescission. Under federal law, you have the right to rescind a reverse mortgage within a specified time frame after closing. Exercise this right to cancel the transaction and avoid further financial harm.
- Report the fraud to your lender. Inform your reverse mortgage lender about the scam. They can help you investigate the situation, recover lost assets, and potentially rectify the issue.
- Contact the authorities. Report the scam to local law enforcement, your state attorney general’s office, and the Consumer Financial Protection Bureau (CFPB). Providing detailed information is essential for any potential investigations.
- Freeze your credit. To prevent identity theft and unauthorized financial activities, consider freezing your credit with the major credit bureaus. This action can help safeguard your personal and financial information.
- Sign up for identity theft protection. Enroll in an identity theft protection service. They can provide continuous monitoring of your personal information, alert you to suspicious activities, and assist in recovering your identity if it’s compromised.
Reverse Mortgage Scams FAQs
How would I know if a reverse mortgage is legitimate?
Prior to engaging with a lender, conduct thorough due diligence. Verify their affiliation with reputable organizations like the National Reverse Mortgage Lenders Association (NRMLA) or their approval by the Department of Housing and Urban Development (HUD). Additionally, review online feedback and investigate any complaints lodged with the Better Business Bureau (BBB), Federal Trade Commission (FTC), or Consumer Financial Protection Bureau (CFPB).
What are some of the reverse mortgage red flags I should watch out for?
Watch out for these red flags when considering a reverse mortgage:
- Complex, poorly explained terms.
- Offers that seem too good to be true.
- High-pressure sales tactics.
- Unsolicited advertisements and calls.
- Generic voice-recorded messages.
- Discouragement from contacting professionals.
- Requests for fees to access reverse mortgage information.
This information is often free from reputable sources, such as the Department of Housing and Urban Development (HUD) website.
How would I know if a reverse mortgage offer is too good to be true?
If a reverse mortgage offer seems too good to be true, be cautious. Look for overly enticing promises, unrealistic benefits, or terms that appear exceptionally favorable compared to standard reverse mortgage arrangements. Scrutinize such offers closely and seek advice from trusted financial professionals to ensure the offer’s legitimacy.
Guard Yourself Against Reverse Mortgage Scams
Reverse mortgage scams are all about taking away the money you’ve put into your home, which could lead to losing it. Since reverse mortgages can be complicated, they’re a perfect target for scammers. To protect yourself or a loved one, it’s important to learn about these loans and the companies offering them. If you ever have questions or concerns, don’t be afraid to ask for help. You’re not on your own in this, and there are resources to assist you.
KEY TAKEAWAYS
- Reverse mortgages are lawful financial tools accessible to homeowners aged 62 or older.
- Scammers are skilled at cultivating trust and take advantage of homeowners’ vulnerabilities.
- Many homeowners have lost their properties due to reverse mortgage scams.
