As the reverse mortgage industry is growing, eventually the scams associated with this industry are also increasing. Most of the frauds in reverse mortgage industry take place because of lack of awareness. While the rules are getting stricter but scammers stil find ways around them. Some popular scams are:
Being Charged for Reverse Mortgage Information: One of the most common types of reverse mortgage scam is being charged for information on reverse mortgage by the advisor or estate planner. In many cases seniors are charged hefty amount of money to provide information which is provided free by HUD. Typically these charges are hidden within the estate planning program run by these firms and as borrowers are generally unaware about the fees collected by the firms for providing information they end up paying hefty amount. Sometimes this amount can be as large as 6 to 10 percent of the amount borrowed.
How to avoid the scam: HUD website provides free information on reverse mortgage and there are many websites (ours is one of them which provide reliable information for free on reverse mortgage). Consult your friends and look up information in internet to avoid such kind of scams.
- Reverse Mortgage Counselling Scam: One of the requirements to obtain HECM is that the borrower has to consult a Reverse Mortgage counsellor and understand exactly how a reverse mortgage works. As per rules and regulations, the counsellor should not promote products or services offered by other companies during counselling. But in few cases the counsellors partner with other reverse mortgage lenders and while counselling the borrowers, they are trying to push the borrowers into their products or services.
How to avoid the scam: Speak only to HUD approved counsellors. Refrain from accepting any recommendations from counsellors unless you validate them yourself independently.
- Reverse Mortgage Repairs Scams: In order to obtain reverse mortgage, the property shouldn’t have any repair requirements. In case there are, the lender specifies the borrower about them and the borrower has to ensure they are taken care of. In such cases, take multiple quotes for these repairs to ensure you get best pricing. In many cases, the contractors recommended by the lenders have found to be charged higher than normal rates.
How to avoid the scam: Take quotes with more than one contractor, atleast three. Also inquire about specifics of the repairs before going ahead with them.
FHA reverse mortgages (HECM) are the most preferred mortgages in U.S. and due to increase in the volumes of HECM, the fraud perpetrators have also increased. The following represent some of the types of frauds generally encountered in HECM Reverse mortgages.
- Flipping – This involves an investor initially buying a foreclosed home for below market value. It then arranges for its sale which is bogus to a senior eligible for reverse mortgage. Then the borrower takes up a reverse mortgage at an inflated value on that home and pays back the amount received as reverse mortgage to investor. In this case the senior gets the home for which he has not paid anything and the investor gets reverse mortgage money.
- Taking personal cheques: An elderly woman was misled by her health insurance representative. He convinced her to pay him loan application processing fee and repay him the reverse mortgage loan amount for health insurance. He stole a large amount from her HECM. He asked the old woman to repay loan by writing personal checks to him and she paid from funds received as well as from her retirement annuity and from cash advances on her credit card.
Overall the best way to get avoid scams is to be fully aware of reverse mortgage information. There are plenty of free and reliable information available on this topic on our website. Feel free to browse and gain from it!