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

REVERSE MORTGAGE SCAMS

July 25, 2022

REVERSE MORTGAGE SCAMS

Courtesy AARP

A reverse mortgage is a type of loan that is designed to give people access to the equity they’ve built up in their home — basically, the property’s current value minus any outstanding loans or liens — without having to sell it.

For certain older homeowners, a reverse mortgage can be a way to supplement retirement income, consolidate debts or cover expenses like health care. For scam artists, they can be a lucrative tool to fleece people in their 60s and up out of large sums of money, or even their homes.

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

Available to homeowners aged 62 and over, reverse mortgages are complicated, and they can be risky. Fraudsters take advantage of that complexity to draw older homeowners into bad or outright bogus deals, marketing 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.

Scammers want to put into their pockets the home equity you spent years building.  

Warning Signs:

A broker or lender uses high-pressure tactics to try to talk you into a reverse mortgage.

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

They don’t 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 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.

Have you seen this scam?

Call the AARP Fraud Watch Network Helpline: 877-908-3360

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