Avoiding Reverse Mortgage Scams
Reverse mortgages have been gaining popularity as seniors look for ways to supplement their income, pay for major medical bills or help fund nursing care costs for their spouse or loved one. Unfortunately, due to the fact that many seniors aren’t familiar with reverse mortgage guidelines, they can be easy targets for unscrupulous lenders or scam artists. The best way to avoid being taken advantage of is to educate yourself on the facts regarding reverse mortgages.
Because senior citizens are often targets for fraud, reverse mortgages are commonly used to lure older homeowners into taking out scam loans, eventually draining their equity and potentially leaving them without enough money to live on.
Here are a few tips for avoiding the risk of loss through scam reverse mortgages:
If you’re considering taking out a reverse mortgage loan, the first thing you should do is research the loan thoroughly before signing anything. Even legitimate reverse mortgages may not be the best choice for every homeowner, so the more you know about the requirements and risk, the less likely you are to make a major financial mistake.
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But how do you determine a legitimate reverse loan from a scam? Here are a few red flags that could signal a scam:
Unfortunately, there are a lot of estate planning services that charge high fees for providing information that is offered for free through the Department of Housing and Urban Development (HUD). In many cases, seniors are unaware that these services collect thousands of dollars by charging between 6 and 10 percent of the total amount borrowed. You can easily save yourself the added expense by conducting a little research on your own. Just make sure you are getting your information from official, reputable sources. Besides ReverseMortgageValue.com, HUD’s website is one such example: www.hud.gov or visit this link for their page dedicated to reverse mortgage information: http://portal.hud.gov/hudportal/HUD?src=%2Fprogram_offices%2Fhousing%2Fsfh%2Fhecm%2Fhecmabou
Discouraging the borrower to seek mortgage counseling.
In order to be approved for a reverse mortgage loan, borrowers are required to receive free or reduced cost mortgage counseling. If the person you’re speaking to about a reverse mortgage tells you that you don’t need counseling, or if they try to downplay its importance, they are most likely running a fraudulent operation. If they try to pair you up with a particular counselor, make sure they are HUD-approved. If they aren’t, that is yet another sign of trouble.
Missing or incorrect information on your paperwork.
Before you sign any documents regarding your reverse mortgage loan, make sure you carefully review every word on every section. If you see that some information has been left blank or if you notice that some information is incorrect, this is a definite red flag. Even if the so-called lender assures you that the information will be filled in or corrected later, you should refuse to sign anything until the corrections are made. Keep copies of everything you sign for your own records.
Unwillingness to disclose certain risks.
Taking out a reverse mortgage can be a great option for certain senior homeowners. However, there are costs and risks involved. Even though you will not have to make a monthly mortgage payment, you will still be responsible for paying taxes, homeowner’s insurance and regular maintenance costs. Because many seniors are on fixed incomes with little flexibility, there may be the risk that the amount borrowed may not be enough to provide financial security through the end of life. Depending on the amount of equity available there may be other alternatives that make more sense, such as downsizing to a less costly home. If the lender you’re dealing with seems unwilling to discuss the risks of reverse mortgage loans, it could be a sign of a scam, or at the very least, an unethical lender.
Receiving unsolicited advertisements or offers that sound too good to be true.
According to the FBI, senior citizens are targeted for reverse mortgage scams extremely frequently.
“Reverse mortgages, also known as home equity conversion mortgages (HECM), have increased more than 1,300 percent between 1999 and 2008, creating significant opportunities for fraud perpetrators.”
Source: FBI (http://www.fbi.gov/scams-safety/fraud/seniors)
If you receive unsolicited ads for reverse mortgages, foreclosure assistance, investment opportunities and the like, thoroughly research the company advertising their services before responding if it’s something you’d like to learn more about. Check with the BBB, the local Chamber of Commerce, and ask people you know and trust about the company’s reputation. As an added precaution call the main phone number listed on the company’s website rather than a number on an email or a mailing, as sometimes these are sent out by fraudulent third parties claiming to be a well known organization.
Suggestions from professionals not in the reverse mortgage business.
Sometimes, people who sell large ticket items or services (like insurance policies or annuities) will push the consumer toward a reverse mortgage as a way to pay for other purchases. If you find yourself being on the receiving end of a reverse mortgage sales pitch from someone who isn’t in the mortgage business, beware. This is often used as a way to simply get you to buy their products or services.
Unethical mortgage terms.
While not necessarily illegal, some lenders practice unethical lending practices by tacking on excessive fees or unfavorable terms. For instance, some lenders use what is known as “shared equity” or shared appreciation terms, in which the lender will have the right to collect a portion of the equity or appreciation when the home is sold or refinanced. These provisions may not seem like much, but as the home appreciates, the cost of these provisions could easily get extremely high.