Avoiding Reverse Mortgage Scams
By Deb Keltner
Reverse mortgages are an excellent option for seniors who want to supplement their retirement incomes and take advantage of equity in their homes. Most lenders are reputable and are diligent in their business practices, but consumers should be aware of a few of the most common scams and frauds that are perpetrated across the nation, swindling many seniors out of thousands dollars of their hard earned equity. Because reverse mortgages involve one of our largest assets (your home) this type of fraud can have serious implications on your retirement. There 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. Working with a certified Reverse Mortgage Monitor lender and learning about common reverse mortgage pitfalls are important protections against these frauds.
Charging for information that is provided to all people for free.
Beware of estate planning companies that charge for information provided free from HUD. Typically these estate planning 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 suggest using a reverse mortgage as a way fund these purchases. Unfortunately, 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 include extraneous fees and terms into their contracts, which can have a serious effect on a senior's equity. Some 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 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. Read your contracts carefully, and question any fees or terms that you do not understand or expect.
Protecting yourself from reverse mortgage scams.
There are several things that you can do to protect yourself from falling into reverse mortgage scams.
Review Reverse Mortgage FAQ's.
- 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 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.
- 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 online through our Compliancy Center.