Avoid Reverse Mortgage Scams

Avoiding Reverse Mortgage Scams

By Charles Kirkendall

Reverse mortgages are gaining in popularity. More and more senior's looking for ways to supplement their retirement incomes are turning to reverse mortgages. As reverse mortgages become more popular, more cases of reverse mortgage fraud are popping up. Many seniors are finding themselves victims of reverse mortgages scams that cost thems thousands of dollars in equity. Since reverse mortgages typically involve your largest asset (your home), you will want to make sure that you do not fall victim to one of these scams.

Reverse Mortgage Scams

The following describes several types of reverse mortgage scams. Each of these scams costs victims thousands of dollars in equity in their homes.

Charging for free reverse mortgage information:

Some companies have been charging thousands of dollars for information provided free from HUD. Typically these companies charge for this information as part of estate planning services. Seniors signing up with these programs are unaware that these firms are charging a fee of 6 to 10 percent of the total amount borrowed. This equates to $6,000 to $10,000 of unnecessary fees on a $100,000 reverse mortgage. HUD has issued a directive to lenders that issued reverse mortgages insured by the Federal Housing Administration (FHA) to stop doing business with these companies.

Pushing reverse mortgages as a way to pay for large purchases:

Some companies will try to suggest using a reverse mortgage to purchase the items they are selling, like annuities or insurance. When the additional cost of the reverse mortgage is factored into the purchase, it ends up costing the homeowner more than the benefit provided.

Unethical reverse mortgage terms:

Some reverse mortgage lenders will slip excessive fees and terms into their contracts. These can have a devestating effect a Seniors equity. In some cases lenders have used shared equity or shared appreciation terms. These cost of these provisions can run into the tens of thousands of dollars as the home appreciates. These rising cost provisions cost homeowners equity without providing any additional benefit to the homeowner.

Protecting yourself from reverse mortgage scams

There are several things that you can do to protect your self from being a victim of a reverse mortgage scam.

Speak with a HUD approved reverse mortgage counselor. The counselor will help you evaluate your situation and any potential reverse mortgage offers.
Obtain several offers from different reverse mortgage lenders in order to compare different options.
Make sure you understand all the terms and conditions within the reverse mortgage contracts. Your reverse mortgage counselor can guide you through the contracts.
You generally have three business days after signing the loan document to cancel it for any reason.

If you suspect that a compay is violating the law, let your reverse mortgage counselor know and then file a complaint with your state Attorney General's office or banking regulatory agency and the Federal Trade Commission (FTC) at www.ftc.gov.

Resource Box: Charles Kirkendall writes on a variety of senior financial issues. For more information visit Reverse Mortgage Information or the Reverse Mortgage Blog.