Common Reverse Mortgage Scams
New real estate scams pop up regularly. But even with so many new scams appearing, many fraudulent actors are still using the same reverse mortgage scams that have been around for decades.
Consider the common reverse mortgage loan scams discussed in detail next.
Foreclosure Scams
These scams target seniors who are already in jeopardy of losing their home to foreclosure. Scammers promise foreclosure relief using a reverse mortgage. While a reverse mortgage does pay off an existing mortgage, it comes with high closing costs and other fees. Plus, you’re still responsible for paying your property taxes, homeowners insurance and home maintenance costs. If you don’t stay current on those expenses, you could still lose your home. For seniors facing foreclosure, a reverse mortgage could be an additional expense – or put them in the same situation in the very near future with a reverse mortgage foreclosure.
If you need assistance making mortgage payments, you should consider alternatives such as loan modification, which may allow you to extend your loan term or lower your interest rate without refinancing.
Equity Theft Scams
Equity theft scams can involve several parties, including unscrupulous appraisers, attorneys and loan officers, who all work together to inflate an appraisal on a home. This makes it seem like the homeowner has more equity than they really have. The scammers will then convince the homeowner to get a reverse mortgage to cash in on their increased equity.
They handle all of the documents, close the loan and then take the loan proceeds, leaving the borrower with little to no equity or cash after paying closing costs and other fees.
House Flipping Scams
In this reverse mortgage scam, fraudsters convince senior homeowners to get a reverse mortgage on their existing home, then use the proceeds to buy another property. The additional property is usually purchased at a cheap cost by the scammers, then “fixed up” enough to look like a valuable investment. It’s only after the deal is closed and the scammers have pocketed their profits that the new homeowner realizes the house hasn’t been repaired enough to be a valuable investment and that they’ll likely lose money when it’s sold.
Fraud By Relatives Or Financial Planners
This type of senior reverse mortgage scam involves a crooked financial planner or adviser talking you into getting an unnecessary reverse mortgage. They’ll likely handle the money on their own and ultimately use the proceeds for their own financial gain.
Unfortunately, this can happen with relatives of the borrower as well. A loved one may convince you to get a reverse mortgage and give them the proceeds. Or they may coerce you into giving them power of attorney, which allows them to make financial decisions for you, including getting a reverse mortgage and putting the loan proceeds into their own accounts.
Veteran Reverse Mortgage Scams
It’s important to remember that the Department of Veterans Affairs (VA) doesn’t currently offer any reverse mortgage loans and there are no reverse mortgages specifically for veterans. If someone is trying to sell you a reverse mortgage specifically for veterans or one that’s offered by the VA, it’s a scam.
If you’re a veteran and having trouble making monthly mortgage payments, a VA refinance – or VA Interest Rate Reduction Refinance Loan (IRRRL) – may help you lower your interest rate to make monthly payments more manageable.
Fraud By Contractors
You should be leery of any contractor who suggests a reverse mortgage as a funding option for a home project. While many borrowers do use a reverse mortgage to help fund home renovations, it’s often for improvements that they themselves noticed and wanted.
A reverse mortgage scam along these lines often goes something like this:
- First, a contractor approaches the homeowner unsolicited, claiming they noticed something wrong with the home.
- Next, the contractor uses strong language to induce fear into the senior, claiming the repairs are necessary.
- The contractor provides an estimate that’s much higher than the actual repair costs.
- The contractor suggests a reverse mortgage loan as a free way for the homeowner to pay for the repairs.
- The homeowner takes out an unnecessary reverse mortgage and pays for the repairs.
The truth is, most of these contractors are unlicensed, and their repairs – along with being unnecessary – could cause more issues with the home.
To make sure you don’t get caught in this reverse mortgage scam, always use a licensed contractor who has good reviews.
If you’re thinking of using some of the equity in your home to make home improvements, consider a cash-out refinance from a reputable lender.
