Problems selling a home are plaguing homeowners, but it’s not the only issue facing the housing market. If you’re a senior and you own your own home, you are more likely to be targeted for a home-related scam, according to the FBI.
And with the number of reverse mortgages (also known as a home equity conversion mortgage (HECM) increasing more than 1,300 percent between 1999 and 2008, there are significant opportunities for those inclined to perpetrate a home-related fraud.
I had the chance to speak with Peter Bell, president of the National Reverse Mortgage Lenders Association (NRMLA), and ask him about reverse mortgage scams. According to Bell, these scams generally involve people who look to “basically defraud the seniors out of the money after they have the reverse mortgage. Very few are related to getting the actual mortgage.”
Unfortunately, in the majority of cases, these scams involve someone related to the senior.
The FBI reports that in many of these reverse mortgage scams, victim seniors are offered free homes, investment opportunities, and foreclosure or refinance assistance. Seniors are frequently targeted through local churches and investment seminars, as well as television, radio, billboard, and mailer advertisements.
The elderly are also used as “straw buyers” in property-flipping scams, Bell explains.
“For example, there was a property-flipping scheme where a group recruited seniors who didn’t have homes and put them in homes. They told each one of them to get a reverse mortgage, and then the group took the money,” he adds. The senior borrowers were left with no money, no home, and ruined credit.
So how do you prevent yourself or a loved one from becoming the victim of a reverse mortgage scam?
Look for the following reverse mortgage red flags:
1. The lender doesn’t allow you to choose your own reverse mortgage counselor. Every HECM borrower is required to go for counseling before he or she can actually apply, and the lender must provide a list of sources that offer this counseling. According to Bell, “if the scam is occurring in conjunction with a reverse mortgage, the lender can’t afford for people to go to legit counseling. So they’ll make them go to a counselor they choose.”
If you’re not given a list of around ten sources for reverse mortgage counseling, the lender could be trying to scam you by sending you to a counselor who is involved in the scheme.
2. The lender gives you options but offers to make the appointment for you. The lender must give you options, but you are responsible for making the appointment on your own. Both Bell and the FBI suggest you seek out your own mortgage counselor, whether from the lender’s list or not.
Be wary if the lender tries to make the appointment for you. The lender giving you the list of reverse mortgage counselors makes it seem like he or she is giving you a choice in counselors, but making the appointment for you could be another way the lender assures you go to the counselor of his or her choice.
3. The lender tries to take your money right away. According to Bell, “lenders can talk to a prospective client, get them interested, and can take preliminary information, but [they] cannot begin to formally process an application or obligate the senior to any cost without the senior making a counseling appointment.” Seniors are required to attend a reverse mortgage loan counseling appointment and return a certificate of attendance signed by both the counselor and the prospective client.
4. It’s not clear who is insuring the HECM loan. The Federal Housing Administration (FHA) backs all legitimate HECM loans. If you don’t see that agency’s name anywhere, that’s a huge red flag.
Remember, the best way to avoid being scammed is to keep asking questions until you’re satisfied you’re getting a straight answer. And if you don’t understand how your reverse mortgage works, don’t sign any documents until you get enough information.
For more information, check out the FBI’s in-depth bulletin with tips for avoiding reverse mortgage scams.
Read more about how to protect yourself from identity theft and protect your credit score from Equifax.
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Ilyce R. Glink is the author of several books, including 100 Questions Every First-Time Home Buyer Should Ask and Buy, Close, Move In!. She blogs about money and real estate at ThinkGlink.com and at the Home Equity blog for CBS MoneyWatch.
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