Identify a reverse mortgage scam and avoid it
Reverse mortgages are gaining in popularity as senior's look for ways to supplement their retirement incomes. And as the interest in reverse mortgages increases, so are cases of reverse mortgage fraud. Many seniors are finding that they have lost thousands dollars of their hard earned equity to these reverse mortgages scams.
Since reverse mortgages typically involve our largest asset (your home), this type of fraud can have a serious negative impact on your retirement. The following reverse mortgage fraud information will help you avoid becoming a victim of a reverse mortgage scam:
- Charging for free information on reverse mortgages: Several estate planning companies have been charging thousands of dollars for information provided free from HUD. Typically these companies charge for this information as part of an estate planning program. Seniors that sign up for these programs are unaware that these firms are collecting thousands of dollars by charging a fee of 6 to 10 percent of the total amount borrowed. These fees cost the victims $6,000 to $10,000 on a $100,000 reverse mortgage.
- Downplaying the counseling session: Time with an independent, HUD-approved counselor is an important step in learning more about reverse mortgages. After speaking with a counselor, you may find that a reverse mortgage is not a good fit for your needs. Be educated about reverse mortgages and understand all the fees, costs, and benefits before securing a loan.
- Unspecified repairs and costly repair jobs: If a repair is requested by the lender, be sure to ask for the specifics and know what you are paying for. Additionally, consult various contractors to obtain the best price possible. It may be possible that the lender-recommended contractor is working with the lender and charging exorbitant prices.
- Blank forms or incorrect information: When closing your loan, always review all the documents, forms, and fees with your lender. Never sign any forms with blank fields or incorrect information.
- Pushing reverse mortgages as a way to pay for purchases: Some companies that sell large ticket items or services, like annuities or insurance products, may try to suggest using a reverse mortgage as a way fund these purchases. When the additional cost of the reverse mortgage is factored into the purchase, it ends up costing the homeowner much more than the benefit provided by the product or service.
- Unethical reverse mortgage terms: Some lenders slip in excessive fees and terms into their contracts. These terms can have a serious effect on a senior's equity. In some cases, lenders have used shared equity or shared appreciation terms, which gives the lender the right to collect a portion of the appreciation when the home is sold or refinanced. The cost of these type provisions can run into the tens of thousands as the home appreciates. These rising cost provisions eat up equity without providing any additional benefit to the homeowner.
- Lack of disclosure: Even though you can stay in your home and make no more mortgage payments, you still have to pay your property taxes, homeowner's insurance, and maintenance costs, or you could lose your home. Borrowers who take the maximum lump sum at an early age are especially at risk of not having sufficient cash flow, as they age, to cover the mandatory expenses. These risks are not always disclosed. You should know the negatives as well as the positives, before taking a reverse mortgage.
Protect Yourself From Reverse Mortgage Scams
If you are looking into reverse mortgages, there are several things that you can do to protect yourself from falling victim to these types of scams.
- Speak with a HUD-approved reverse mortgage counselor. The counselor will help you understand reverse mortgages and help you evaluate your situation.
- Obtain several offers from different reverse mortgage lenders to compare different options. The rule of thumb is to get at least three separate offers so that you have a good comparison of the terms offered. We can get you started with our reverse mortgage savings center.
- Make sure you understand all the terms and conditions within the reverse mortgage contracts. Your reverse mortgage counselor can guide you through the contracts.
- You generally have three business days after signing the loan document to cancel it for any reason.
If you suspect that a company is operating in violation of the law, let your reverse mortgage counselor know and then file a complaint with your State Attorney General's office or banking regulatory agency and the Federal Trade Commission (FTC).
Learn about the three types of reverse mortgage and find out which is right for you in the Bills.com article Understanding and Selecting a Reverse Mortgage.