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.
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.
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.
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.
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