Reverse mortgages are gaining in popularity as more senior’s start looking for ways to supplement their retirement incomes. And as the interest in reverse mortgages increase, so are the cases of reverse mortgage fraud and scams.
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.
Reverse Mortgage Scams:
The are several types of reverse mortgage scams that can end up costing you thousands and even tens of thousands of dollars in equity in your home if you become a victim.
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. HUD has recently issued a directive to lenders that issued reverse mortgages insured by the Federal Housing Administration (FHA) to stop doing business with these companies.
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 to 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.
Protecting yourself from reverse mortgage scams
If you are looking into a reverse mortgage, there are several things that you can do to protect yourself from falling victim to these types of scams.
1. Speak with a HUD approved reverse mortgage counselor. The counselor will help you understand reverse mortgages and help you evaluate your situation.
2. Obtain several offers from different reverse mortgage lenders in order 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.
3. Make sure you understand all the terms and conditions within the reverse mortgage contracts. Your reverse mortgage counselor can guide you through the contracts.
4. 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) at: http://www.ftc.gov.