SCAMS BULLETIN Host Jay White is an inactive attorney in San Mateo County, California.

October 17, 2020

REVERSE MORTGAGE SCAMS

A reverse mortgage is a type of loan that is designed to give homeowners access to the equity they have built up in their homes — basically, it is the property’s current value minus any outstanding loans or liens.

The homeowner gets what is, in effect, a tax-free advance on their equity. It can be in the form of a line of credit, fixed monthly payments or a lump sum. For most reverse mortgages, the borrower must use part of the proceeds to pay off any existing mortgage. The loan comes due when the owner moves, sells the house or dies.

For scam artists, this can be a lucrative tool to fleece people age 62 and older out of large sums of money, or even their homes.

Available to homeowners age 62 and over, reverse mortgages are complex, and they can be risky. Fraudsters take advantage of that complexity to draw older homeowners into bad or outright bogus deals. They may market reverse mortgages in ads and “investment seminars” as a cure-all for financial worries in your golden years, providing “free” income or a means to delay filing for Social Security.

It is often a group effort, with unscrupulous mortgage brokers or financial advisers joining forces with corrupt appraisers, attorneys and loan officers. They will finagle an inflated appraisal of a home’s value, thus inflating the equity and the potential loan, and try to persuade the owner to take out a reverse mortgage. The team of crooks will handle the paperwork, close the loan and come up with a pretext to get the money or even take title to the house.

Warning Signs

A smooth-talking “broker” or lender uses high-pressure tactics to try to talk you into a reverse mortgage loan.

REMEMBER. The scammers bottom-line goal is simple: They want to put into their pockets the home equity you spent years building.

They claim the loan is safe because it is insured by the Federal Housing Administration (FHA). The FHA does insure some reverse mortgages, but that coverage does not protect the borrower; it is for the lender, in case of default.

Scammers do not disclose the fees, conditions and risks that come with taking out a reverse mortgage, including the possible loss of the home, which serves as collateral.

Do’s

Do get information on reverse mortgages from reputable sources, such as HUD or the Federal Trade Commission.

Do talk to a trusted financial adviser or attorney before you sign anything. If the reverse mortgage is a federally insured Home Equity Conversion Mortgage (HECM), as most are, you are required by law to meet with a government-approved counselor.

Do be wary if someone selling home improvement services suggests taking out a reverse mortgage to pay for renovations or repairs.

Do be suspicious of claims that a reverse mortgage will get you free income or a free home.

Do know that you usually have the right to cancel a reverse mortgage within three days after closing.

Don’ts

Don’t respond to unsolicited advertisements pushing reverse mortgages.

Don’t sign any loan paperwork that you don’t completely understand.

Don’t buy other financial products, services or investments in order to obtain a reverse mortgage.

Don’t take out a reverse mortgage using just one spouse as the borrower. A reverse mortgage in one borrower’s name comes due when that person dies, and the surviving spouse could face collection proceedings and lose the home.

For more information call the AARP Fraud Watch Network Helpline: 877-908-3360

ATTRIBUTION: AARP