Home > Identity Theft > 6 Ways to Avoid a Reverse Mortgage Scam

Comments 0 Comments

Most people work hard to get to retirement age and enjoy the perks that come along with it, including not paying a mortgage. But imagine reaching that point and then being scammed out of the value of your home. It’s actually happening with reverse mortgage schemes.

What’s a Reverse Mortgage Scam?

Fraudsters are using a number of different scams. In some cases, they will try to convince a senior to take out a lump sum payment on a home’s equity to pay for a bunch of fictional items: costly repairs they don’t need, reverse mortgage counseling fees, “high profit” insurance policies, “can’t miss” investments and finder fee annuities from their fraudulent company, according to a fraud prevention bulletin from the U.S. Department of Housing and Urban Development (HUD). The scammers might even tell a senior they can get a reverse mortgage with no money down.

“After the lump sum is paid out, the fraudster disappears with the money and the senior is left with no cash or equity in the home. They may face eviction if taxes on an over-valued property are not paid,” the bulletin said.

Here are seven ways to protect yourself or a loved one from falling victim to this type of scam.

1. Don’t Wait Until You’re Desperate to Get a Reverse Mortgage

If you do plan on getting a reverse mortgage because you need the extra cash, remember, it’s mandatory to first speak with a HUD-certified housing counselor because there are other ways to pinch pennies. “It’s never a good idea to make a financial decision under stress. Waiting until a small issue becomes a big problem reduces your options,” according to the National Council on Aging. [Editor’s Note: This story has been updated to make it clear that counseling is mandatory.]

2. Shop Around

A scammer often insists they are the only lender you should speak with. However, it’s a good idea to compare at least two or three offers to protect yourself, according to Casey Fleming, author of “The Loan Guide: How to Get the Best Possible Mortgage” and mortgage adviser for C2 Financial Corporation. It’s also a good idea to check their reputation with the Better Business Bureau.

3. Avoid Purchasing Other Investments From Your Lender 

“Your lender should not be selling you investments — there is too great a conflict of interest,” Fleming said. “Invest through a financial planner, financial adviser, or asset manager.” And if you’re investing in high-risk investments, a rule of thumb is to only invest what you can afford to lose.

4. Use Caution When Lenders Tell You to Get Repairs

“HUD, which insures well over 95% of the reverse mortgages out there, only requires that a home be safe and functional,” Fleming said. So, things like broken furnaces or missing railings need to be fixed, but other things don’t. If a lender tells you that you need repairs, Fleming recommends you shop around and get a second opinion from another lender. If the advice matches, then consider the repairs. Before you decide on a contractor to do the repairs, Fleming suggests you interview any recommended contractors as well as get a scope of the job and interview other contractors to make sure you’re not being overcharged.

“It is illegal for a lender to steer the borrower to a particular contractor, and illegal for kick-backs to be paid or received, but that doesn’t mean it doesn’t happen,” Fleming said.

5. Steer Clear of High Pressure Sales Tactics

If you’re pressed to sign, just walk away. If you do not understand why you are signing papers, consider talking with a trusted friend, attorney or family members.

6. Attend the Closing in Person

Getting a reverse mortgage is a relatively large, potentially life-changing decision, and you’ll want to be as present as possible through the process. Be sure to attend the closing personally and make sure any proceeds are given to you and not someone else.

Scams happen, even to careful people. It’s wise to check your credit report to make sure that you haven’t unassumingly fallen victim to any. You can get two of your credit scores for free, updated every 14 days, on Credit.com.

Image: Pathos Media

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team