Seniors are an often-targeted group when it comes to financial scams and mortgage fraud is no different.
A study from Investor Protection.org found that 20% of Americans aged 65 or older have already been taken advantage of financially in terms of an inappropriate investment, unreasonably high fees for financial services, or outright fraud.
Because you’ve worked hard to build the equity in your home over time, it’s important to remain vigilant about whom you work with when making the decision to get a reverse mortgage.
There are many resources available to help older homeowners avoid reverse mortgage scams, with the Federal Bureau of Investigation (FBI) being one of them.
According to the FBI, in many of the scams that have been reported, victim seniors are offered free homes, investment opportunities and foreclosure or refinance assistants.
Property flipping scams also may target homeowners as “straw buyers” or those who make a purchase on behalf of someone else.
FBI notes that common places where fraud takes place are through local churches and investment seminars, but they can also target victims through advertisements on TV, radio, billboards or mail.
Documentation: All documents involved in the reverse mortgage process should be complete before being signed by the borrower. Take the time to understand the documents and don’t be afraid to ask a trusted advisor to help go through them.
Government misrepresentation: A Home Equity Conversion Mortgage (HECM) is the most common type of reverse mortgage, and it’s insured by the Federal Housing Administration (FHA). However, the government and its employees do not market or sell the loans.
In this type of scam, a person or company will falsely state that they represent the federal government in an attempt to gain the borrower’s trust. This is an immediate red flag and you should report it to the FBI.
Investment scams: The Department of Housing and Urban Development prohibits lenders from selling any financial products along with a reverse mortgage. If someone is trying to convince you to take out a reverse mortgage to buy an insurance or financial product, this is illegal.
Charging for information: Like all loan products, there are fees associated with reverse mortgages. However, no one should charge you for information about the loan or how it works.
That information is provided for free through the Department of Housing and Urban Development, and your lender or broker can help as well.
According to the FBI, reverse mortgage scams are conducted by fraudulent professionals across real estate, financial services and other sectors who are out to steal the equity from property owned by an unsuspecting senior homeowner. Sometimes the schemes are complex and involve several different people or companies.
While there have been reports of reverse mortgage scams in the news, the government has made several changes to the program to ensure it remains a safe and valuable option for older Americans.
Those changes include the anti-cross-selling provisions, more in-depth and thorough reverse mortgage counseling and a series of regulations that govern the marketing and advertising of loan products.
But even with those changes, borrowers should still be on the lookout for anything that doesn’t seem legitimate.