Reverse Mortgage Scams
A reverse mortgage, aka home equity conversion mortgage (HECM,) is a loan product that allows a homeowner to access the property’s unencumbered value.
It can be a useful way for senior citizens to increase their income in retirement. According to the FBI and the Office of Inspector General of the US Department of Housing and Urban Development (HUD,) reverse mortgages have increased over 1,300% between 1999 and 2008.
Unfortunately, this has created the opportunity for scammers to take advantage by perpetrating a variety of reverse mortgage scams.
This article will explain what a reverse mortgage scam is, including providing examples of several of the most common ones, and arm you with information and resources to protect yourself from becoming the victim of one.
What is a Reverse Mortgage Scam?
Reverse mortgage scams are designed to steal equity from senior citizens’ property or use those senior citizens to help the scammers steal equity from another property.
Example(s) of Common Reverse Mortgage Scams
Reverse mortgage scams come in many forms and guises, including as offers of free homes, refinance or foreclosure assistance and investment opportunities.
Here are five of the most prevalent reverse mortgage scams, in no particular order:
1. Investment Scam
Of the many “get rich quick” schemes out there, this one involves getting victims to invest in a real estate fund associated with one or more reverse mortgages.
The scammer, then, steals the funds from the reverse mortgage, leaving the victim with a worthless investment.
2. Document Fraud Scam
In the scam, seniors receive a letter regarding the loan documents on their home and called a Reconveyance Deed or something of the like.
The letter requests money from the homeowner to cover the costs for copies of the deed to their home.
This document is usually available for free from the lender on the home. Similar scams involve charging victims money for info about a reverse mortgage they can actually learn about for free from HUD.
3. Free Home Scam
With this scam, an advertisement entices seniors with the opportunity to live for free in a home so the advertisers can take out a reverse mortgage on it.
After settlement, the scammers keep all the funds from the reverse mortgage while the seniors are not only left without any of it, but they’re also left burdened with the responsibility to pay the insurance and property taxes on the home.
4. Equity Scam
This scam involves several individuals working together to purchase a foreclosed or distressed property and, then, get an appraisal with an artificially inflated value.
After that, the scammers try to recruit a senior into the scam, getting the senior to rebuy the home and get a reverse mortgage on it. At settlement, the senior is left with little to no cash or equity, and everyone else involved splits the money from the reverse mortgage.
In many cases, even the reverse mortgage’s settlement attorney is one of the scam’s perpetrators.
5. Foreclosure Scam
Victims of this scam are seniors at risk of losing a home to foreclosure. In this scam, the perpetrators use a disreputable appraiser to inflate the home’s value artificially, then get a reverse mortgage on it.
Once the reverse mortgage is approved, the perpetrators have the homeowner transfer the title for the home over to the them.
This effectively leaves the victim with neither a home nor the income of a reverse mortgage.
Red Flags to Look Out For
Legitimate HECM loans are insured by the Federal Housing Authority. To qualify for one, you must be at least 62 years old.
You must also own a property that you occupy as your primary residence and for which you have a small balance remaining on your mortgage.
If you are offered a reverse mortgage that is not insured by the FHA or even though you don’t meet the aforementioned qualifications, consider that a red flag the offer may be a scam.
Tips to Protect Yourself
Whether you notice any red flags or not, there are several ways you can protect yourself against reverse mortgage scams.
Simply follow these guidelines, and you’ll be better armed to prevent yourself from becoming the next reverse mortgage scam victim.
- Accept no payments from anyone for a home you do not own.
- Respond to no unsolicited ads for reverse mortgages. If you want to learn more about reverse mortgages, speak with a trusted financial expert, such at your bank or credit union.
- Beware of anyone who says you can own a home without putting anything down. If an offer sounds too good to be true, it most likely is.
- Sign nothing you don’t completely understand. Take any paperwork you’re considering signing to a trusted financial expert to help you make sense of it and avoid signing anything you may later regret.
- Consult with a reverse mortgage counselor. Whether you want to discuss how a legitimate reverse mortgage might help you or you want help identifying whether a reverse mortgage offer you’re considering is a scam or not, you can speak with a reverse mortgage counselor at 121 Financial Credit Union.
Summary & Resources
If you believe that you’ve been the victim of a reverse mortgage scam or you’ve identified a suspicious individual pushing reverse mortgages that you’d like to report, you can file a complaint with the US Department of Housing and Urban Development by calling their hotline at 1-800-347-3735 or online at HUD-OIG. You can also contact your local FBI office or the national FBI electronic tip line.
Other sources for guidance and information on avoiding scams targeting seniors include the National Council on Aging, which publishes a free booklet on the topic of reverse mortgages.