Scams of all shapes and sizes are taking place constantly. Sadly, a favored target of scammers happens to be seniors. Scammers believe they can take advantage of older individuals by posing as a bank, lender, non-profit, or even government organization. As such, it’s important that you become educated about scams that are going around, particularly in relationship to your mortgage.
Reverse mortgages are an option for individuals 62 or older that may need some financial help. Reverse mortgages are not intrinsically bad or predatory, but there are many unscrupulous lenders and sales tactics being used to take advantage of seniors. Let’s take a detailed look at what a real reverse mortgage looks like and what is undoubtedly a scam.
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Is a Reverse Mortgage a Ripoff?
Reverse mortgages are not scams. However, they aren’t always for everyone. Depending on your scenario, there might be a better option for you to take if you feel like you might be struggling with your mortgage. Unfortunately, there are plenty of scams out there that claim to be reverse mortgages or something similar. Know what signs to look out for in order to save yourself from a fraudulent situation.
Additionally, there are some banks and independent lenders that may push the option of a reverse mortgage more than they should. There are plenty of other possible mortgage solutions out there for someone 62 and older that needs a bit of a financial break. Other options should always be explored before you ever think about looking into a reverse mortgage. This way, you’ll be able to find something that is a perfect fit for your lifestyle. Although it could end up being a reverse mortgage, that isn’t always the case.
Recognizing Reverse Mortgage Fraud
Reverse mortgage is not the technical term for what this process actually entails. A reverse mortgage is actually called a Home Equity Conversion Mortgage or HECM. This is the first piece of evidence you can use to determine whether something is a scam or not. Reputable, federal programs will use this term; mortgage scammers may not. Yes, there are other types of reverse mortgages, but that is the title for official programs. Other state specific agencies that offer reverse mortgages will be third party organizations or non-profits and they may use other terms like single-purpose reverse mortgage or proprietary reverse mortgage. Although, you should be cautious when pursuing something other than an HECM, as these are the most common and reliable type of federal program.
If you do choose to go through a statewide organization or program, please make sure that you do extensive research to ensure that it is a reputable company and has a sound offer. You should do research on any company that you come across, even if they do use the proper HECM title. Below, we’re going to discuss other “red flag” type scenarios that you’ll need to be aware of if you’re in the market for a reverse mortgage.
High Pressure Sales
I just briefly mentioned researching any offer, but I think it is worth stating that most reputable reverse mortgage or HECM lenders will not reach out to you. Reverse mortgages are usually made for those who have few other options financially. So, if someone is reaching out to you with a reverse mortgage offer, that should seem a bit strange.
Reverse mortgages are often thought of as a last option for seniors, not something that should be actively sold or advertised. This means, if you’re getting flyers in the mail and calls from pushy salespeople, it’s likely that it is a scam. Reputable banks, lenders, and non-profits don’t operate in this way. Scammers are the only people that are desperate for you money, so they try and bombard you with extreme sales tactics. Don’t give in, they are not legitimate offers. Even banks who do have reverse mortgage programs shouldn’t try and force you into such a program.
In addition, you may come across advertisements in the mail, via email, or in other places on the web that try to entice you into a fake reverse mortgage program. Aside from the fact that it’s unusual to advertise for such a program, advertisements will treat a reverse mortgage like other types of loans. They may try to grab your attention by saying things like “tax-free” or “no monthly payments” or something to that effect. However, because an HECM is a loan of your own home equity, you shouldn’t have to pay tax and the mortgage company will pay you a monthly installment or lump sum, hence the no monthly payments section.
These are standard aspects of an HECM that shouldn’t be treated like some kind of a special offer, so you should beware of any ad that is doing so. They might have some other hidden portions of the agreement that they don’t want you to pay attention to and for good reason — they’re scamming you.
Delayed Social Security Benefits Scam
If someone gives you financial advice, this could be a scammer or a lender, telling you that you should hold off on social security benefits and instead take out a reverse mortgage—don’t listen.
The basic idea here is that an organization might tell you to wait on social security for now, so that you can get more money later. By putting off social security payments, you may be able to get more money every month when you do sign up. In the meantime, they may say that taking out a reverse mortgage will cover your cost of living. However, that is often times just not true.
Reverse mortgages, although they are a loan of your equity, are still a loan. This means, you’ll still have to pay it back with interest and fees. Sometimes the interest and fees associated with this type of loan are quite high. So, in the end, you’ll have to pay much more money on your loan than you would have if you had signed up for social security benefits on time. Large fees and interest can add years on to your loan, so if you’re in need of money, research other options before you ever think about a reverse mortgage.
Scammers often try to reach out to individuals of a certain age group in order to scam their retirement funds, social security benefits, etc. In doing so, they may reach out to you saying that you must take their reverse mortgage offer or you’ll be forced to give up your home. They may say that you are behind on payments, taxes, or other things. Just know that these kinds of messages should never come from anyone other than your bank or other mortgage lender. If that type of scenario were to be true, whoever loaned you the money for your house would be trying to contact you and you would know the company.
If you don’t recognize the name of a company, they have no business telling you information about your home or finances. They wouldn’t have access to that type of information. Only establishments that you know and trust would ever contact you for something like that, and they will likely not do it via an unsecure medium — like email. In addition, look and listen closely, scammers are sloppy, which means they get information wrong all the time. If they’re trying to mimic an institution that you know, they will likely slip up and say something that doesn’t quite add up. Look for spelling errors or indirect answers to your questions.
Finally, a company that promises you will never lose your home with a reverse mortgage isn’t being truthful either. There are specific details you must follow and requirements you must meet regularly with a reverse mortgage in order to maintain ownership of your home. Namely, you must live there continuously and use it as your primary residence. If you do not, you will be required to pay back your loan. If you can’t pay back the entirety of the loan quickly, the lender may foreclose on your home. Keep this in mind, if anyone is guaranteeing a loan without stipulations, it could be a scam.
How to Report Reverse Mortgage Fraud
If you suspect that a case is fraudulent, you can contact the US Department of Housing and Urban Development. They have a hotline that takes information about such cases. They can be contacted via email, phone, web form, or written letter. They may ask you for further information about the organization and what they said to you, so be prepared for that. You may be asked to relay what was said on a call, what you see in an ad, or to forward information via email for inspection.
Once the department has taken hold of a case, you don’t have to follow up with them. Their department will handle it and will never contact you for more information. Be wary that there could also be scams related to the Department of Housing as well. Any person that contacts you asking specifically for your private, personal information could be a scam.
The real department (and truly legitimate banks, lenders, and non-profits) knows about this and they won’t ever ask for your personal information, like bank routing numbers, credit card numbers, or social security numbers. They may ask you to identify yourself with your name, but it’s not required that they know who you are in order to log a fraudulent claim.
Reverse mortgages may be a great option for some people who truly need the financial assistance. However, there are several other great options out there that could easily be used in place of a reverse mortgage. If you feel that a reverse mortgage is for you, make sure that you understand all of the possible terms and conditions and that you reach out to an organization that you are comfortable with, not someone you don’t recognize. You should never feel pressured to take a reverse mortgage, it should be a choice when you feel it’s the best option. It is never a requirement.
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