Reverse mortgage scams prey on elderly property owners who are in desperate need of supplemental income and have equity in their homes. Mortgage brokers target these elderly homeowners because they are vulnerable to high pressure sales techniques. Homeowners who are sucked into reverse mortgage scams risk losing their homes, decreasing the value of their probate estate, and increasing their debt.
A reverse mortgage is reserved for homeowners aged 62 and older who have equity in their homes. Unlike a traditional mortgage that allows a buyer to borrow money in order to purchase a home, a reverse mortgage allows an owner to receive cash for the amount of equity they have in their home. Reverse mortgages are targeted towards elderly homeowners because they are retired and no longer have employment-related income. A reverse mortgage will give the elderly homeowner access to a large amount of cash immediately.
A reverse mortgage is usually brokered by a lender. In addition, some reverse mortgages are underwritten by the Federal Housing Administration, as well as by a smattering of scam organizations.
If you find yourself running into unexpected expenses, such as medical bills, a reverse mortgage may seem attractive because it allows you to receive cash up-front without requiring monthly payments. Your home equity is your payment.
When you pass away, sell the home or no longer use the home as your primary home, the balance is due immediately. Any remaining equity leftover is yours.
In addition to being at least 62 years old or older, you must live in the home that you are seeking the reverse mortgage for. You must also:
- Own your home or have only a small mortgage balance remaining
- Have a source of income to pay various property expenses
- Pay all real estate taxes, homeowner’s insurance premiums, and utility bills
Though the Federal Housing Administration advises seniors to seek counseling prior to signing the paperwork for a reverse mortgage loan, many homeowners enter into reverse mortgage contracts blindly based on false promises made by scam artists. Scam artists commonly misrepresent the risks of reverse mortgages.
Common scams include:
- Lying about the Risks: Scam artists often state that you cannot lose your home in a reverse mortgage. However, it is very easy to fall prey to foreclosure in a reverse mortgage if you simply fail to pay your real estate taxes.
- False Advertising: Scam artists will label the payouts as free simply because there are no monthly payments. However, the entirety of the mortgage will become due when you pass away, sell the house, or default on one of the conditions such as maintaining homeowner’s insurance.
- Misrepresenting the Effects of the Reverse Mortgage on Your Estate: Your home is your investment. When you pass away, you want your family to inherit your home. However, with a reverse mortgage, the full balance is due when you pass away. If your heirs are unable to pay off the balance, they may never have a legal claim to the house you worked so hard to purchase.
- Sales Pressure: Scam artists only want your money. They do not care if a reverse mortgage is actually a sound investment for your future. As such, they will use high pressure sales tactics to pressure you to take a loan that you may not need. In addition, if you take out a reverse mortgage when you are still young, you may find that all of the cash depletes quickly. You will then be left with no cash and no equity in your home.
If you have been pressured into signing a contract for a reverse mortgage, a skilled real estate attorney can review the contract and help you understand its terms. If legal action is necessary, a lawyer can also help you fight enforcement of the contract.