Reverse mortgage programs have become increasingly popular especially as there are more and more Americans planning for retirement and looking for tools that could help them to live comfortably in their best years. Unfortunately, Americans in their golden years are also a prime target for scammers to take advantage of.
Making sure you know what to watch out for when searching for a reverse mortgage program is the best way to know you are receiving a sound option for retirement.
The reverse mortgage investment scheme
This scheme happens when the sales representative tries to encourage the borrower to use the reverse mortgage for estate planning and invest their money into insurance products or annuity while promising a higher return as part of an estate.
The reason this is not a great idea is that investments can be fraudulent or come with excessively high fees that are paid to the financial advisor working on the reverse mortgage. Often the advisor in the situation will not explain that any returns often do not offset the mortgage interest charges that accrue every month on the reverse mortgage loan balance.
House Flipping Scheme
A person explaining this scheme will suggest that the mortgage holder use cash from the reverse mortgage to buy a second property and flip it for a profit. Flipping is the process of purchasing a home that is outdated or in need of repair and quickly fixing it up and reselling for a higher price to pocket the profit.
The scammer that is trying to sell this idea may guarantee the property will increase in value. The scheme could include real estate agents and loan officers that are colluding to generate a giant commission for themselves from the purchase and resale of the home. They have no care or interest in whether the mortgage borrower actually makes a profit on the flip because they will be receiving their commission no matter what.
Home Improvement Schemes
With this scam, you might have a person knocking on your door offering to give a free consultation for handyman services around your property. Later they reveal their inspection shows that major repairs are needed and they suggest you look into a reverse mortgage to pay for them. It is not uncommon for a reverse mortgage loan officer to be partnered up with the scammer that gives the consultation seeking a commission on originating a new reverse mortgage.
The repair person in this situation often plans to charge an excessively high amount for the work that is done or threaten to put a lien on the property if the homeowner refuses to pay. These scams are hoping that the homeowner will not contact other local contractors and confirm that the repairs they are saying need to be done actually need to be done. Or that they will research other home improvement loan options on their own.
Mortgage Payment Relief Scam
People behind this scam will target low-income homeowners that are struggling to make their current house payments or have a large amount of medical debt. They will entice borrowers by advertising with messages like “stop foreclosure now”, or “receive 100% moneyback guarantee,” while charging an upfront nonrefundable fee to speed the approval process along.
Often times the company or individual offering this easy out of debt solution will disappear after receiving the nonrefundable fee, leaving you with less money than you had before to relieve your financial issues.
The High-Pressured Sales Scam
A less than reputable reverse mortgage loan officer tries to push a borrower to use a special type of reverse mortgage loan program that is not insured or backed by the FHA (Federal Housing Administration). They sell this product to the borrower saying that it costs less and the loan is easier to get approved and will go through more quickly.
Often this means that the loan officer is trying to push what is known as a proprietary reverse mortgage product that does not offer any protection that the FHA gives when it backs a reverse mortgage. An FHA-backed reverse mortgage helps to protect the borrower from this type of sales pressure as it requires a meeting with a certified and trained Housing and Urban Development counselor.
Fraud Performed by Relatives
Unfortunately, there are some less than trustworthy relatives out there looking to benefit from a vulnerable situation. A relative can pressure an elderly family member into getting a reverse mortgage and end up using the equity money for their own needs rather than the homeowner. This is often done by those taking care of, or helping out elderly members that are unable to live completely on their own.
In some cases, a relative has even impersonated an elderly relative during the loan process to originate a loan in their relative’s name.
Special Military Veteran Reverse Mortgage Scheme
The loan officer will claim that they can offer special terms for military veterans or will imply that the Department of Veterans Affairs will back this reverse mortgage.
The VA does not back any type of reverse mortgage loan program or product. There are advertisements out there designed to attract military families by claiming that they have reverse mortgage products that are affiliated with the VA. If you see these or are offered one of these products, you need to run in the other direction as far as possible.
The best idea for looking into a reverse mortgage program is to seek advice from trusted real estate professionals if you do not already know a trustworthy loan officer. You want to make sure you have done your homework on any reverse mortgage product and any loan officer you work with.