How to Avoid Reverse Mortgage Scams
For every successful financial product, there are a host of bad characters who manipulate such products for their own means, rather than in their clients’ best interests. To best understand the financial tool that is a reverse mortgage and common methods to scam, it is best to first begin by comparing and understanding the similarities and differences between the reverse mortgage and a traditional mortgage.
A traditional, or conventional mortgage, should meet the criteria from any governmental agency. These mortgages depend on market conditions and can fluctuate depending on current market conditions. This financial product, in most cases, is fixed in its rate and term. Usually a monthly payment is required to be paid over the course of several years.
For example, if the home cost $150,000, typically on a 30-year mortgage 20 percent is required as down payment—meaning $30,000—while the remaining 80 percent is covered by the lender—$120,000. A conventional mortgage requires a lot of foresight and diligent commitment to see the payment through.
A reverse mortgage, in the simplest terms, can be considered as a reward for the foresight and diligent commitment that the senior went through. Rather than paying the lender for the mortgage, the lender pays you!
For many older people, having reached and surpassed the age of 62, they are now on a fixed income per month. This monthly income may be allocated towards their health, such as paying for long-term care, because otherwise the person may not be able to afford the treatments that they may desperately need.
A reverse mortgage solves this conundrum by allowing persons over the age of 62 to have the opportunity to tap into the equity of their home, in the form of a monthly payments or a single lump sum. As is apparent, this is an ideal financial tool for many and should considered and ultimately utilized.
Unscrupulous Reverse Mortgage Scams
Our ancestors who first inhabitant the earth had to live and prosper by a different set of rules than those of today. Living mostly in clans, these hunter-gathers structured their private lives similar to those of the early 20th century America. Generally, there was a traditional family structure where both the men and women had different roles. The men would provide food in the form of meat, while the women would take care of the home and pick berries.
In order to survive, the men would have to target various animals and work together as a team to kill them. Often times, the animals that were killed were targeted because they were the weakest ones in the group. Sadly, despite thousands of years of human progression, not much has changed.
Reverse mortgage scams are unscrupulous in that people target seniors who have reached a point in their lives where both their health and mental functions are declining. According to Investopedia, the most common forms of scamming that seniors are potentially encountered with are the following:
- Vendor and contractor fraud
- Fraud by relatives, caregivers or financial advisors
- Flipping fraud
- Robbing Peter to (not) pay Paul
The unfortunate part of these tactics is that there is little regulation to prevent these scams from occurring.
The first form of scamming, vendor and contractor fraud, is performed in a series of unfortunate steps. The vendor may be a person who specializes in home repairs and targets a senior to purchase their services. Their ideal person is a senior who is unable to pay for the services; thereby the vendor recommends initiating a reverse mortgage to pay for their fees. High pressure sales techniques—in many cases—are used to have the senior engage in the usage of the financial product when it does not make sense for the situation.
The second category, fraud by relatives, caregivers or financial advisors, is devastating in that the person is usually someone the senior has had a relationship with over a couple of years. The advisor may pitch a financial product that is not within the seniors means, and advise that the senior pay for the product by initiating into a reverse mortgage. This method relies heavily on releasing the consent of power of attorney, a document that allows financial affairs, to be conducted on the senior’s behalf by an adviser, caregiver or children.
The third category, flipping fraud, is awful in that a larger amount of money may more casually be swindled from the senior. A realtor in this case may pitch an inexpensive home, while not disclosing the poor condition it is in and the requirement that the senior provides significant improvements. In this instance, the realtor may recommend a Home Equity Conversion Mortgage in order to purchase the property, and divert the remaining proceeds to themselves as opposed to their client. Additionally, to the senior’s disbelief, he/she are not acquiring the home through the Housing and Urban Development program.
Lastly, a firm may use the proceeds from a reverse mortgage to line their pockets rather than to minimize the borrowers’ mortgage. Without having the mental fortitude to stay on top of these transactions, seniors may eventually wake up one day to learn that their mortgage payments defaulted.
Moving Forward with this Information
As stated prior, for every successful financial product, there are a host of bad characters who manipulate such products for their own means, rather than in their clients’ best interests. While that statement may come across as cynical, it is a necessary reality to be faced by both seniors and their loved ones to be aware of. On our website, which can be accessed by clicking here, there is a whole trove of additional information that is free to access—a hospitality we provide for our clients. Our learning center, or blog, is constantly being updated and is seeking to tackle those difficult questions, which often times one does not want to hear but must.
If you have additional questions on our financial products; want more information reverse mortgage specifics; or to find out if a reverse mortgage makes sense for you, our company has specialists standing by to answer your calls. Our hours are Monday to Friday, 9 a.m. to 8 p.m., and Saturday to Sunday, 12 p.m. to 3 p.m. EST.