Staying vigilant against computer scams and other fraud has become a natural part of life for many consumers, yet scams are successfully perpetrated every day. One reason: Individuals who intend to commit fraud have become more creative than ever, and they choose their targets with care.
One group of people that scammers like to target is the elderly, believing that older people are less quick to catch on to a potentially harmful scheme than younger people may be. In recent years, as the number of senior homeowners who opt for a reverse mortgage has risen and so has the prevalence of reverse mortgage scams.
- Scam artists often prey on the elderly with various mortgage and investment schemes.
- A reverse mortgage is a tool available to seniors over the age of 62 and can be a helpful in retirement.
- It allows homeowners to borrow money and the amount typically depends on the value of the home, the age of the homeowner, and the amount of equity in the home.
- Many scams involve phony appraisals of home values or inaccurate loan documents.
- Seniors considering a reverse mortgage should begin at the HUD website and talk to a reverse mortgage counselor.
The Home Equity Conversion Mortgage (HECM) is the FHA's reverse mortgage program, which is available to homeowners age 62 and older and can be a valuable financial tool for tapping into home equity and providing income for retirees. Homeowners working with a legitimate reverse mortgage lender will be required to participate in financial counseling to ensure that they understand the loan and how it works.
Even so, if you are considering a reverse mortgage as a retirement tool, watch out for these potential scams:
Perpetrators sometimes go after seniors who are in danger of losing their homes to foreclosure. They artificially inflate the value of the home with the help of a dishonest appraiser and then obtain a reverse mortgage on the property. After the mortgage approval, the scammers have the seniors transfer the title to them, leaving the seniors without a home and without the funds from the reverse mortgage. Another way of defrauding the senior homeowners is to work with a fake financial institution that will inform the owners that they cannot qualify for a reverse mortgage but that they can have a different type of loan. During the closing, the title to the property will be transferred away from the homeowners.
Equity Theft Scams
Complicated equity theft schemes often involve several individuals who work together to buy a distressed property or a foreclosure, then obtain an inflated appraisal and then recruit a senior to repurchase the property and take out a reverse mortgage on the property. Usually, the settlement attorney for the reverse mortgage is also in on the scam, so all of these individuals abscond with funds from the reverse mortgage at settlement, leaving the seniors with little or no equity and no cash.
Scammers and con artists use advertising to recruit seniors to live in a home so that a reverse mortgage can be obtained on the property. The scammers keep the reverse mortgage proceeds and the seniors pay the property taxes and insurance on the home. Generally, the reverse mortgage is obtained on a false, inflated appraised value. Once the seniors pass away or move, the reverse mortgage lender is stuck with a loss due to the lack of true value in the home.
Some con artists simply send letters to seniors about their loan documents, such as a "Reconveyance Deed," requesting money in order to provide them with copies of the deed, a document that should be on file with the lender. Other scam artists charge money to seniors, sometimes thousands of dollars, for information about a reverse mortgage that is available free from the Department of Housing and Urban Development (HUD).
While there are hundreds, perhaps thousands, of investment scams run on individuals all the time, some are specifically geared to getting the target to "invest" in an annuity or real estate fund affiliated with reverse mortgages. The victims will lose the money they invested when the con artist, usually someone associated with a fraudulent reverse mortgage lender, will walk away with the funds.
Tips for Avoiding Scams
Seniors interested in learning more about their options for a reverse mortgage should start by going to the HUD website that explains the basics of these loans and has a link for finding a HUD-approved HECM counselor. Another option to try is the National Council on the Aging website. Homeowners can also receive a free booklet from the National Council on the Aging about reverse mortgages.
Reverse mortgage proceeds can be received as a lump sum, in monthly payments, or as a line of credit. The amount to be borrowed depends on the age of the homeowners, the value of the home, and how much equity is available. The loan will be repaid when the home is sold or if the homeowner passes away. If any home equity remains in the home after the loan is repaid, the funds go to the homeowners or their heirs. Homeowners cannot be forced out of their home because of a reverse mortgage. However, they remain obligated to keep the property maintained, pay their property taxes, and pay for homeowners insurance.
The FBI has a few other tips and suggestions:
- Do not respond to unsolicited advertisements.
- Be suspicious of anyone claiming that you can own a home with no down payment.
- Do not sign anything that you do not fully understand.
- Seek out an experienced reverse mortgage counselor.
The Bottom Line
Avoiding scams and obtaining legitimate information on a reverse mortgage can make this loan product a valuable financial tool for seniors and their families. Like any mortgage, before you sign the dotted line, you need to consult the appropriate professionals and do your own homework, or you risk being taking advantage of by financial predators.