Reverse mortgages were created to help senior citizens. Unfortunately, this financial product has become a vehicle for a number of scams geared toward seniors. Though the opportunity for deception seems to have decreased over the years, there is still a significant risk of fraud, even if a senior is not actively looking for one of these loans.
The Basics of Reverse Mortgage Fraud
These scams generally take a few basic forms. The most obvious types of fraud involve the perpetrator blatantly misleading the senior who is taking out the loan in an attempt to steal from them. There are more subtle cases as well, such as where the perpetrator convinces the senior to take out a reverse mortgage loan that is unsuitable or not the best option available.
Schemes Designed to Steal from Seniors
According to a bulletin from the Federal Bureau of Investigation (FBI), the two most common scams to steal from seniors are equity theft and foreclosure rescue. In an equity theft scam, the perpetrator will purchase a home that is in foreclosure or distressed / abandoned. The home is then sold to a senior citizen, who takes out a reverse mortgage after occupying the property for 60 days. Once the transaction is completed, the perpetrator will steal the proceeds of the loan.
In a foreclosure rescue scam, the perpetrator will identify seniors who are at risk of losing their homes due to foreclosure. They will convince the senior to obtain a reverse mortgage to save the property but will then inform them that they don’t qualify. The senior will then be encouraged to take out a traditional mortgage instead, at which point the property and its equity will get transferred to the perpetrator.
The Loan is Unsuitable or Not the Best Option
Sometimes reverse mortgage fraud involves more subtle deception – the lender or other advisor is not necessarily lying to the senior citizen who’s considering a reverse mortgage but pushes the loan knowing that it’s either not the best option or is an unsuitable product. In these instances, the scammer uses high pressure sales techniques to push the reverse mortgage, urging the senior to act fast before carefully considering their options. These criminals have also been known to send direct mail that attempts to sell the reverse mortgage as something closely tied to the government by using confusing language and different government seals.
If you are dealing with a lender, the biggest risk that you face is that the loan is not suitable for your needs. In some cases, the loan is simply not right for you. In others, a reverse mortgage may fit your need but may not be the most affordable or appropriate financing option available. It is the reverse mortgage lender’s duty to perform due diligence and to disclose this information to you.
In other cases, the fraud occurs when the perpetrator attempts to sell other products that will be paid for by a reverse mortgage. Seniors will sometimes receive a pitch for home improvements services. After the salesperson concludes the presentation, they’ll insist that a reverse mortgage is the best option to pay for these improvements. Companies that sell financial products such as annuities and insurance will sometimes encourage people to use the proceeds of a reverse mortgage to pay for these products.
Reverse Mortgage Fraud is Often Committed by Someone You Know!
According to this article by the Wall Street Journal, the victims of reverse mortgage scams often know the perpetrator. The perpetrator could be a financial advisor or even a family member. Though the entire story is worth reading, we’ll focus in particular on the case of Larry Bekis from St. Paul, Minn. In 2006, Bekis arranged for a his 84-year-old mother to take out a reverse mortgage on her home. Once the transaction was completed, he stole more than $100,000 from the proceeds and stopped paying for his mother’s nursing home care.
Tips from the FBI
The FBI put together a list of tips to help seniors avoid reverse mortgage fraud. Since these tips are so important, we’ve republished them verbatim below:
- Do not respond to unsolicited advertisements.
- Be suspicious of anyone claiming that you can own a home with no down payment.
- Do not sign anything that you do not fully understand.
- Do not accept payment from individuals for a home you did not purchase.
- Seek out your own reverse mortgage counselor.
How to Report Fraud
Many seniors who have experienced reverse mortgage fraud do not report the crime to the authorities. Whether you are ashamed, fearful, or have another reason for hesitation, it’s important that you come forward and report the crime. The authorities may be able to help you recover your personal losses, and you may save other seniors from suffering the same fate. Here are a few helpful links for reporting fraud.
About the Editor
Aaron Crowe is a freelance journalist who specializes in writing about personal finance. He has written for AOL, U.S. News & World Report, WiseBread, Bankrate, AARP, Allstate Insurance, Wells Fargo, newspapers, and various websites about credit, retirement, mortgages and related topics. You can find his work at AaronCrowe.net or on Twitter @AaronCrowe.