Reverse Mortgages Scams

Reverse mortgages are frequently promoted as a solution for senior citizens to convert their home equity into cash. On the other hand, reverse mortgages can be costly, and the loan terms are convoluted. Due to seemingly minor mortgage breaches, borrowers frequently end up in foreclosure. Furthermore, unscrupulous mortgage brokers may try to persuade elders to take out a reverse mortgage by making false promises or committing fraud. Unfortunately, many older people are duped by con artists who convince them to take out a reverse mortgage they don’t comprehend.

These loans are structured so that the lender either receives its money back (plus interest) or owns the property. Even if you follow the terms of your reverse mortgage contract to the letter, you’ll most likely run out of money or equity when the loan is due, forcing you to sell the property, surrender it to the lender, or lose it to foreclosure. So, if you’re thinking about acquiring one of these loans, make sure you understand how they work, know the risks and criteria, and keep an eye out for frauds.

Scams and Tricks Associated with Reverse Mortgages
Seniors are occasionally duped into taking out reverse mortgages by unscrupulous lenders and brokers. Here are several scams to stay away from.

• Sales Under Duress

Mortgage brokers have targeted financially disadvantaged senior citizens and pressured them into taking out a reverse mortgage. Seniors may encounter pushy brokers who use aggressive sales tactics to persuade them to take out loans that they may not require.

• FHA Insurance Claims That Aren’t True

The Federal Housing Administration insures Home Equity Conversion Mortgages (HECMs), the most popular type of reverse mortgage (FHA). When selling reverse mortgages, lenders and brokers may highlight that the loan is federally insured, as though this protects the borrower somehow. It isn’t the case—the lender profits from this insurance policy. The insurance kicks in when a borrower falls on a loan and the house aren’t worth enough to fully repay the lender through foreclosure or another type of liquidation, such as a sale or deed in lieu of foreclosure. The lender is compensated for the loss by the FHA insurance.

• Deceptive advertising

Some reverse mortgage commercials claim that you will receive “tax-free money.” However, the proceeds are not taxed because a reverse mortgage is a loan rather than income.

In addition, most advertisements fail to mention the costs, terms, or hazards involved with the loan. Seniors frequently don’t completely comprehend the terms of reverse mortgages, and fraudulent mailings exacerbate the problem.

State Law restricts reverse Mortgage Advertising.
On reverse mortgage advertisements, some state statutes impose varied criteria and limits. In general, these regulations prevent lenders and brokers from misrepresenting material facts or making misleading claims in reverse mortgage marketing materials. They also typically demand explicit disclosures regarding the loan’s essential terms. Speak with a real estate lawyer or a foreclosure lawyer to find out if your state has any regulations regarding reverse mortgages.

1. Taking out a reverse mortgage and deferring Social Security payments
   While taking out a reverse mortgage to delay receiving Social Security benefits isn’t precisely a fraud, homeowners should be wary of doing so.
   Some reverse mortgage brokers and lenders recommend that elderly homeowners seek a reverse mortgage to cover the income gap while deferring Social Security benefits until they’re older. Because Social Security benefits are delayed, when a homeowner receives benefits at an older age, their monthly use is permanently increased.

2. Falsifying the Risk of Losing the House
   Some brokers falsely claim that you will never lose your home or suffer foreclosure if you take out a reverse mortgage. This, however, is not the case. When one of the following events occurs, a reverse mortgage becomes due and payable (and is subject to foreclosure):

• The property is sold, or the title is transferred to the new owner.
• the borrower no longer lives in the house as their primary residence (or the borrower moves out for more than 12 months due to physical or mental illness)
• the borrower fails to meet their mortgage responsibilities, such as paying property taxes, maintaining hazard insurance, or maintaining the property in good repair, or
• When a borrower passes away, the property is no longer the primary residence of at least one living borrower. On the other hand, a nonborrowing spouse might be able to stay in the house (see below).
  As a result, a home might be repossessed for as little as unpaid insurance premiums.

3. Using Celebrity Spokespersons
   Reverse mortgage lenders frequently use celebrities such as Tom Selleck and Robert Wagner in their ads. While the usage of celebrity ambassadors isn’t inherently a ruse, it is deliberate. The lender’s purpose is to instil confidence in you regarding the product. You may believe that you don’t need to discover the facts of the loan since you trust the spokesman. It’s in the lender’s best interests for you to remain ignorant; if you understand all of the criteria and repercussions of a reverse mortgage, you may reconsider taking one out.
   It’s essential to keep in mind that engaging a celebrity in an advertisement campaign is costly. The lender will have to find a way to reclaim this money, which will most likely come in excessive fees on reverse mortgages.

4. Scams involving contractors
   Contractors may approach senior citizens about taking out a reverse mortgage loan to pay for house repairs. Getting a reverse mortgage for this purpose is almost always a bad idea. Even if you feel that getting a loan to pay for repairs is required, the contractor is almost certainly a fraudster who will overcharge you. It’s probably a fraud if someone tries to sell you a reverse mortgage and you didn’t initiate the contact. Don’t feel compelled to take out a reverse mortgage.

5. Military Veterans are the Targets of Scams
   Reverse mortgage loans are not guaranteed by the Department of Veterans Affairs (VA). A reverse mortgage lender may make deceptive promises to veterans or imply that the VA accepts these loans. It isn’t the case.

6. Taking a Reverse Mortgage without a Spouse
   Some brokers advise homeowners to use the reverse mortgage loan to name the elder spouse as the sole borrower. Brokers employ this strategy because the amount they can borrow is determined by the current interest rate, your home equity, and your age. The problem with this strategy is that if the older spouse dies, the surviving spouse may lose their home. If the elder spouse was the single borrower on the reverse mortgage, the loan is considered due and payable when that borrower dies because the loan becomes due when the final borrower dies.