A reverse mortgage is a special type of home loan for elderly individuals that provides the borrower with a regular payouts and doesn't require a monthly payment to be made. However, some unscrupulous individuals use the reverse mortgage loan format to scam those who are trying to manage their retirement. While reverse mortgages in general are not scams, the way that they are sometimes used certainly is.
Reverse mortgages are loads designed for individuals who are at least 62 years old and who own their primary residence. The amount borrowed is typically paid out to the borrower in monthly installments, with each payment reducing the equity of the borrower's home, though lump sum and line of credit loans are also available. The payments continue either for a predetermined period of time or for as long as the borrower lives in their home. Once the repayment term is complete or the borrower no longer lives in the home, the property is sold to repay the borrowed amount.
Reverse Mortgage Scams
In reverse mortgage scams, individuals take advantage of the elderly, either by giving them worthless property to take out a reverse mortgage on or using a reverse mortgage to drain the equity from the victims' homes. The elderly are targeted because reverse mortgages are often harder to understand than standard loans, allowing the scam artist to take advantage of any confusion the loan might cause. An unscrupulous attorney may be a party to the scam, giving the victim more confidence in the scam's legitimacy while assisting in filing the legal paperwork needed for the scam.
There are several ways that reverse mortgages are used as scams. Lenders sometimes charge for reverse mortgage information despite the fact that the information is available for free from the Department of Housing and Urban Development. Required pre-mortgage counseling may be downplayed or may not be provided at all, ensuring that the victim can't recognize the scam in progress. Lump-sum payments may be divided into separate checks, with the scam artist forging the victim's signature to steal one of the payments. Some scam artists even go so far as to buy low-value property and give it to the victim free of charge, greatly exaggerating its value in the process; once the victim has lived at the property for 60 days, the scammer assists the victim with applying for a reverse mortgage and then steals some or all of the lump sum payment.
Education is the most powerful tool that senior citizens have to combat reverse mortgage scams. Consult a HUD-certified reverse mortgage counselor to discuss mortgage options and find out whether a reverse mortgage is right for you. Find a HUD-approved lender in your state by checking HUD's approved lender list to ensure that the lender you choose is legitimate. Don't take out a reverse mortgage with anyone who approaches you about a loan without you first expressing interest in one. Most importantly, never sign any loan agreement or other document if you don't fully understand it. Consult a reputable attorney or HUD representative with any questions you have concerning the reverse mortgage agreement.
- Federal Bureau of Investigation: Fraud Target - Senior Citizens - Reverse Mortgage Scams
- Federal Bureau of Investigation; Home Equity Conversion (Reverse) Mortgages Exploited; 2009
- U.S. Department of Housing and Urban Development: FHA Reverse Mortgages (HECMs) for Consumers
- Nevada Fight Fraud: Senior Fraud - Reverse Mortgages