Scammers have long been known to target seniors, making them particularly susceptible to financial exploitation. In 2016 Americans 50 years and older held over 80% of the wealth in the country while households held by owners in their 70’s and 80’s typically had the highest net worth.1 Studies have calculated that seniors could have lost up to $36 billion, a figure hard to calculate as its estimated only a fraction of the cases are ever reported.1
One common financial product sought out by seniors that scammers try to take advantage of is the reverse mortgage. Seniors 62 and older with enough home equity may choose to tap into those funds with a Home Equity Conversion Mortgage (HECM), commonly known as a reverse mortgage. It is important to be able to distinguish between a legitimate lender and a scammer with any financial product.
Below is a list of common reverse mortgage scams to be aware of:2
- Fraudulent Foreclosure: With the help of a dishonest appraiser, the appraiser will inflate the value of the property and transfer the title into their names after the reverse mortgage is obtained. This leaves the borrower without a home or proceeds from the reverse mortgage. Other scammers may work with a fake institution that will deny the reverse mortgage loan, but offer another type of loan. It is during closing that the scammer will transfer the title away from the homeowners.
- Equity Theft: These complicated scams involve several individuals who work to buy a distressed property or a foreclosure, obtain an inflated appraisal, and recruit a senior to repurchase the property with a reverse for purchase loan. The settlement attorney for the reverse mortgage is typically also in on the scam and all of the individuals abscond with funds from the reverse mortgage at settlement, leaving the seniors empty handed.
- Free Homes: Advertising is used to recruit seniors to live in a home so that a reverse mortgage can be obtained on a false or inflated appraised value. The scammers will pocket the reverse mortgage proceeds while the seniors pay the property taxes and insurance on the home. Once the loan becomes due the reverse mortgage lender is stuck with a loss due to the lack of true value in the home.
- Document Fraud: Some seniors fall prey to official looking letters about their loan and charging for copies of documents. Others are sometimes charged thousands of dollars from letters requesting information about a reverse mortgage that is available free from the Department of Housing and Urban Development (HUD).
- Investment Scams: Among the perhaps thousands of investment scams out there are those specifically geared to getting the victim to “invest” in an annuity or real estate fund affiliated with reverse mortgages. This scam ends when the con artist walks away with the victims hard-earned investment.
How to Avoid Scams
The FBI warns that seniors are most frequently targeted through local churches and investment seminars, as well as television, radio, billboard, and direct mail advertisements.3 Reverse mortgages are a great solution for many; however, we suggest doing the following before signing an application:
- Research the Lender’s BBB rating and online reputation
- Confirm the Loan Originator’s License # on the Nationwide Multistate Licensing System & Registry (https://www.nmlsconsumeraccess.org/)
- Don’t sign anything you don’t understand
- Don’t accept payment or money for a home you didn’t purchase
- Speak with a counselor of your choice that is certified by the Department of Housing & Urban Development
- Note: This is a requirement for all reverse mortgage lenders. Anyone not allowing you to speak with a counselor is not complying with HUD Requirements and it poses a potential red flag. https://www.hud.gov/i_want_to/talk_to_a_housing_counselor
Do Your Due Diligence
The reverse mortgage can be a valuable financial tool for seniors and their families which is why obtaining valid information from reputable sources is so important. Like with any mortgage, consult with trusted professionals and do your research when choosing your lender.