Reverse Mortgages are not for everyone. Most people interested in a reverse mortgage and qualify are susceptible to scams. Applicants must be 62 or older, and most have little savings or investments, which is ideal for predators. In addition, scammers pose as trusted individuals. Each scam is unique since con artists tend to tailor their scams to fit the need of a specific homeowner, so learning the red flags and the common scams are essential.
Be careful who you list as Power of Attorney since you do not want them to obtain a reverse mortgage for their benefit. Also, be wary of a trusted family member, friend, or caregiver who coerces or impersonates a homeowner to file for a reverse mortgage and deposit the funds into their account. Fraud by a relative or trusted friend is one of the saddest scams since the homeowner loses everything.
Be wary of a financial planner or investment advisor recommending reverse mortgage funds for a not needed financial product such as stocks, annuity, or whole life insurance.
Watch out for Veteran scams targeting VAs struggling to make their monthly mortgage. Currently, there are no reverse mortgage programs explicitly offered for veterans. If someone is trying to sell you one, it is a scam.
Be aware of financial scams.
Equity theft scams require a team of dishonest appraisers, attorneys, and loan officers working together. The scammers inflate the home’s value and encourage the homeowner to take advantage of the equity. They will do all the work, including taking the loan proceeds, leaving the homeowner with nothing.
Foreclosure scams convince a struggling homeowner or one facing foreclosure to take out a reverse mortgage to bring their outstanding loans current versus a loan modification. Foreclosure scams are not in the homeowner’s best interest since one of two things happen:
(1) Closing costs and fees are high for reverse mortgages. Add in the property taxes, HOA dues, homeowner’s insurance, or home maintenance costs, and the homeowner may be unable to afford it and ultimately lose their house.
(2) Scammers walk away with the reverse mortgage proceeds leaving the homeowner to face default.
Vendor scam – does fixing up a home make sense?
Vendor or contractor scams involve a professional coming to a senior’s home to sell repairs or remodeling projects or another home-improvement service a homeowner may not need and cannot afford. The scammer recommends a reverse mortgage to pay for the services. Home improvement scams may not be in the homeowner’s best interest.
Flipping scams are when a homeowner is convinced to use the equity in their home to buy a fixer-upper so they can convert it into a rental property. The scammer will buy a cheap house, make some repairs, then take off with the rest of the money. Ultimately, the homeowner lost equity in their primary residence and has rental property in poor condition and not rentable.
Make sure you understand a reverse mortgage.
Homeowners need to understand the implications of getting a reverse mortgage. Applicants must consider all options since another solution may be viable without sacrificing the home’s equity. Understand what you are signing up for.