Rare Reverse Mortgage Scam Exposed
As a general rule reverse mortgages are a solid product with little room for people to be cheated. However as in most other industries, the reverse mortgage industry does have a very small number of unscrupulous people who pose as genuine lenders. These scammers are really out to swindle unsuspecting seniors of their earnings. They seem to keep looking for new ways to beat the system and scam seniors to make quick cash.
Since these are the minor exception that are tinting the fine reverse mortgage product, we have taken upon ourselves to expose these few scams on our reverse mortgage blog.
A number of reverse mortgage lenders have already caught on and have added some new requirements to HUD’s underwriting criteria to prevent this type of fraudulent schemes. Reverse mortgage loans are designed to help seniors reverse their home equity and benefit from it. Some unsuspecting seniors may fall prey to fake lenders who would take advantage of them and use them and the reverse mortgage program to flip properties. It is important that all those involved with the mortgage and real estate industry take note of how this scam works.
This scam involves one or more investors who buy foreclosure or rehab houses at their quick sale value. They buy houses below the market price and try to use seniors and reverse mortgages to flip the house for a quick profit.
They first arrange a staged home sale to a senior. After the senior buys the home they then arrange for him to take out a reverse mortgage loan on the newly acquired home. The reverse mortgage loan is arranged at an inflated value. Once the loan is received they leave the transaction with a nice profit and the senior is supposed to end up with a home and no repayments. The scheme is designed as if the senior involved is not exposed to any form of risk, this however is not so.
This method of flipping homes and using reverse mortgage for quick benefit is against the original design of reverse mortgages. Reverse mortgage loans are meant to help seniors to benefit from gradually accumulated equity. Seniors who get homes under this fraud scheme have no accumulated equity and have no record of being able to meet up with taxes, insurance or other associated maintenance costs. This fraudulent practice twists a good program and works to ruin it.
The Home Equity Conversion Mortgage reverse mortgage loan program was approved and signed into law during President Reagan’s administration and it was intended to help seniors who were homeowners to access their accumulated equity, live comfortably and not have to make repayments. Just like insurance programs certain ages and equity positions are supposed to protect the government, the borrower and their heirs from losses. When the accumulated equity base is not theirs then the expected safeguard is also not there.
Reverse mortgage loans are insured by FHA and later are often sold in the secondary market to members of the Federal National Mortgage Association. One reason why perpetrators of this act can succeed is because the HUD does not specify any seasoning requirements. This means that the HUD does not have any minimum time frame a senior can be a homeowner before they can use it to seek reverse mortgage loans.
This type of fraud must be rejected by all because it is fraudulent and its acts like this that has lead to the cry of bail-outs everywhere. This type of greed threatens the American society. Putting seniors in homes they cannot afford to maintain and meet the insurance and tax costs is not a way to help seniors. Once these costs cannot be met over a period of time the senior then faces the risk of losing the home. Luckily this scam is a very rare occurrence in the stable reverse mortgage market.
Seniors should avoid falling into the whims of these fraudsters who are just interested in their quick profits. Avoid people who propose a take out strategy for foreclosure properties or rehab homes. Most times the senior will be asked to sign a document such as a Quit Claim Deed before the house is bought in their name. The deed is to enable them remove the senior from the property easily if the deal fails to go through. Once you are asked to sign such you should be aware that it is fraud and steer clear of it.
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