Reverse mortgages allow homeowners 62 and older to borrow against their home’s equity. Their objective is to give older citizens additional financial support and aid in retirement. However, not everyone has the best interests of seniors in mind, and many con artists exploit this form of loan to defraud older Americans out of their hard-earned money and equity and, in some cases, their homes.
How can you protect yourself or a loved one against con artists? The first step is understanding how to recognize some of the most prevalent reverse mortgage frauds. The next step is working with a reputable lender who offers these sorts of loans. At this moment, Rocket Mortgage® does not provide reverse mortgages, but we can help you learn more about them and the warning signs to watch out for so you don’t fall prey to fraud.
Frequent Reverse Mortgage Scams
Almost daily, new real estate and financial services frauds appear. And although con artists may be becoming more inventive, they continue to exploit several typical reverse mortgage frauds. Here are some of the most common ones you should be familiar with.
Scammers target the elderly who are in danger of losing their homes to foreclosure, proposing rescue through a reverse mortgage. Although a reverse mortgage pays off an existing mortgage, it comes with significant closing charges and other fees. You are still liable for property taxes, homeowners insurance, and home maintenance expenses. You might still lose your house if you stay caught up on these payments. For seniors facing foreclosure due to the inability to make payments, a reverse mortgage might be an added expenditure – or put them in the same scenario in the near future with reverse mortgage foreclosure.
If you need assistance, explore loan modification, which may allow you to extend the duration of your loan or reduce your interest rate without having to refinance. This might reduce your monthly payment to an amount that is more reasonable.
Equity Theft Scams
Equity theft schemes include many participants, including unethical appraisers, attorneys, and loan officers, who collaborate to inflate a home’s assessment so that the homeowner seems to have more equity than they have. The con artists will then persuade the homeowner to obtain a reverse mortgage to capitalize on their high equity. They conduct all the paperwork, close the deal, and then pocket the loan funds, leaving the borrower with little to no equity and little cash after closing expenses and other fees.
Housing Flipping Scams
Convincing older homeowners to obtain a reverse mortgage on their present home and then using the money to purchase another property constitutes a house-flipping scam. Scammers typically acquire this other property cheaply, then “dress it up” to appear a worthwhile investment. The new homeowner discovers the house is in severe ruin only after the finalized transaction and the fraudsters have received the funds.
Fraud Committed by Relatives or Financial Advisors
In reverse mortgage fraud, a dishonest financial planner or adviser convinces you to obtain a reverse mortgage when you do not require one. They may advise you to allow them to invest your earnings on your behalf but subsequently utilize the funds for their financial advantage.
Unfortunately, this may also occur with the borrower’s family members. A loved one may encourage you to obtain a reverse mortgage and transfer the proceeds to them. Or, they may pressure you into granting them power of attorney, allowing them to make financial choices on your behalf, such as obtaining a reverse mortgage and depositing the money into their accounts.
Veteran Reverse Mortgage Scams
It is crucial to understand that the VA does not offer reverse mortgage loans at this time and that no reverse mortgages are designed exclusively for veterans. It is a fraud if someone tries to sell you a reverse mortgage for veterans or one offered by the VA.
If you are a veteran with difficulty paying your monthly mortgage payments, a VA refinancing or VA Interest Rate Reduction Refinance Loan (IRRRL) may assist you in reducing your interest rate and making your monthly payments more reasonable.
Fraud Committed by Contractors
A contractor who recommends a reverse mortgage as a financial option for a home improvement project should be viewed with suspicion. Even though many borrowers utilize reverse mortgages to pay for home modifications, these are typical changes that the borrowers themselves want. This reverse mortgage fraud typically includes an uninvited contractor who claims to have discovered a problem with the house and then coerces the homeowner into making repairs. These individuals are frequently unlicensed and make estimates far greater than the real cost. The proposed fixes by these contractors are frequently unneeded and, if performed poorly, might cause more problems. Frequently, the contractor informs homeowners that reverse mortgage funds can be used to pay for the work. However, it is essential to understand that reverse mortgages are not free money. These loans include several fees and closing expenses.
Consider a cash-out refinancing from a trustworthy lender if you want to use a portion of your house’s equity for home upgrades. And always employ a licensed contractor with positive testimonials.
Key Red Flags for Reverse Mortgage Scams
While the scams may vary, they frequently employ similar methods to deceive potential victims. When contemplating a reverse mortgage, be aware of the following red flags:
- The firm uses tough phrases and provides inadequate explanations for them.
- The deal seemed to be “too good to be true.”
- The lender employs aggressive sales techniques.
- You are receiving unwanted phone calls, emails, and letters.
- You are receiving phone calls with prerecorded, generic messages.
- The company instructs you to refrain from contacting your present lender, real estate attorney, or financial advisor.
- The company wants to charge you for access to information on reverse mortgages.
You should never pay for such details. In addition to the numerous free online resources for reverse mortgages, the Department of Housing and Urban Development (HUD) offers free reverse mortgage information on its website.
How to Avoid Fraudulent Reverse Mortgages
Knowing the typical reverse mortgage scams and their telltale signs is an excellent approach to avoid being duped. However, further precautions can be taken.
- Consult with reputable professionals, such as your financial adviser and real estate attorney.
- Ask reliable family members for assistance in learning more about the loan and the lender with whom you are dealing.
- Ensure that you fully comprehend everything before signing anything. Ask questions about anything you do not understand, and have a trustworthy family member or attorney check the paperwork before you sign them.
- Investigate your reverse mortgage lender to ensure that they are a respectable business. Visit your lender’s website and social media accounts, verify their Better Business Bureau (BBB) rating, and read client testimonials.
- Ignore any unwanted commercials, calls, and emails.
- Register for reverse mortgage counseling even if it is not a requirement.
- Call the HUD Office of Inspector General’s hotline at (800) 347-3779 if you suspect that someone is attempting to defraud you.
If you’re considering a reverse mortgage, consider a home equity conversion mortgage (HECM), guaranteed by the government, is only available through FHA-approved lenders, and provides additional consumer protections.
Reputable Advice Is the Best Protection Against Fraud
Overall, reverse mortgage scams are designed to rob homeowners of their equity, leaving them with minimal equity and putting them at risk of losing their houses.
Reverse mortgages are complicated loans, making them an ideal target for fraud. Homeowners must understand the loan product and the lender delivering the program as much as possible. Communication is one of the finest strategies to protect yourself or a loved one. Consult a trusted family member, professional Home Loan Expert, financial adviser, or real estate attorney regarding prospective offers. They can assist you in better comprehending this complex debt, presenting you with other possibilities, and helping you determine the best solution for your financial goals.