Reverse Mortgages 101: Six Common Scams and How to Spot Them

Reverse mortgages can be a lifeline for seniors, but beware—scams targeting this financial tool are on the rise.

A home equity conversion mortgage, also known as a reverse mortgage, offers a solution for seniors looking to tap into their home equity without selling their property. However, it also presents opportunities for con artists to exploit vulnerable individuals. Understanding how reverse mortgages work, along with their caveats and how to avoid falling prey to scams, is crucial for anyone considering this option. Please read on as we explore the many nuances of reverse mortgages.

What is a Reverse Mortgage?

This specialized loan is available to homeowners aged 62 or older and allows them to convert part of their home equity into cash. Unlike traditional mortgages where homeowners make monthly payments to a lender, with a reverse mortgage, the lender pays the homeowner. The loan is repaid when the borrower moves out of the home or passes away, typically through the sale of the home.

Get to Know the Pros and Cons

Carefully weigh the benefits and potential drawbacks before you sign on the dotted line:

Pros:

• Provides additional income: Seniors can use the equity in their homes to supplement their retirement income.
• Allows residents to stay in their homes: With a reverse mortgage, seniors can access funds without having to sell their homes, allowing them to age in place.
• No monthly mortgage payments: Borrowers are not required to make monthly payments on the loan as long as they continue to live in the home.

Cons:

• High fees: Reverse mortgages often come with high upfront fees and closing costs.
• Accumulating interest: The loan balance increases over time as interest accrues, potentially reducing the equity remaining in the home.
• Impact on heirs: Since the loan must be repaid when the borrower moves out or passes away, there may be less equity left for heirs.

Six Common Reverse Mortgage Scams

A very concerning aspect of these specialized loans is that they are prone to fraudulent activity. Conduct thorough research and carefully review all documents before entering into a reverse mortgage. Here are six common scams to watch for along with helpful tips for avoiding them:

1. Equity Stripping

Some scammers target seniors with substantial home equity, convincing them to take out a reverse mortgage. They then strip the equity through excessive fees or fraudulent investment schemes. To avoid this scam, carefully review all loan documents and consult with a trusted financial advisor before proceeding.

2. Property Flipping

Unscrupulous individuals may persuade seniors to take out a reverse mortgage to purchase a property that is overvalued or in poor condition with the promise of significant returns. Be wary of any investment opportunities that seem too good to be true and seek advice from impartial professionals.

3. Phony Counseling Services

Swindlers may pose as reverse mortgage counselors, offering their services for a fee while providing inaccurate or misleading information. Always verify the credentials of any counselor and ensure they are approved by the Department of Housing and Urban Development (HUD).

4. Foreclosure Rescue Scams

Some scammers target seniors facing foreclosure by offering to help them save their homes through a reverse mortgage. However, they may charge excessive fees or trick the homeowners into signing over the deed to their property. Always consult with a reputable housing counselor or attorney before entering into any agreements.

5. Loan Flipping

Defrauders may encourage seniors to repeatedly refinance their reverse mortgages, leading to increased fees and interest charges. Avoid falling into this trap by carefully evaluating the terms of any refinancing offers and seeking advice from independent financial advisors.

6. Identity Theft

Seniors applying for reverse mortgages may become targets for identity thieves seeking to steal their personal and financial information. Protect yourself by only providing sensitive information to trusted and verified sources.

While reverse mortgages can offer financial flexibility for older Americans, they also come with risks, particularly the potential for various fraudulent activities. By understanding how reverse mortgages work and being aware of the common scams, you can protect yourself and your assets. Always consult with trusted professionals, thoroughly review all loan documents, and never rush into any financial agreements without careful consideration.

Whether you’re considering a reverse mortgage for extra income or are exploring options to protect your home equity, armed with the right information, you can navigate this complex financial landscape with confidence. The experts at Certified Title are here to help you make the most informed decisions. Contact us today to learn more.

About Certified Title Corporation: Since 1994, attorney-owned Certified Title Corporation has been furnishing residential and commercial real estate stakeholders across the nation with robust title insurance, settlement, and escrow services. Renowned for its industry-leading reliability and exemplary level of service and quality, the Maryland-based company helps clients from all walks of life achieve their asset goals. To learn more, call (888)486-5511 or visit https://www.certifiedtitlecorp.com/.