As reverse mortgages become more popular, the number of reverse mortgage scams out there also continues to increase. However, they are still exceedingly rare. Do your research and familiarize yourself with the most common scams so that you can steer clear of them and find a genuine offer that will be beneficial.
Phone scams are one of the most simple ways to scam people. It is easy to be mislead over the phone. People can come off as very professional when they know just the right things to say. Do not ever give out personal information if you cannot verify who is on the other end of the line. Once you get the name of the loan officer that you’ve been speaking with, you can look them up on the Nationwide Mortgage Licensing System & Registry (NMLS).
High pressure sales that involve a specific product
Sometimes companies who are involved in annuities or who sell insurance products will push people into reverse mortgages and then start convincing them to use their funds for certain products. Regardless of the party that sold you the reverse mortgage, it is always up to you to decide how you would like to use your funds. Consult with a financial adviser or other neutral party before purchasing one of these products.
On a similar note, some lenders will also strongly encourage their clients to put the money right into an investment or annuity. It may be a smart move, but you should get a second opinion from a trusted adviser before moving forward with this option.
Paying a “finder’s” fee or paying for other free information
A reputable reverse mortgage adviser will always provide a complimentary estimate and share comprehensive details about the reverse mortgage process. Additionally, the U.S. Department of Housing and Urban Development (HUD) publishes a list of approved lenders, which is available online or through an adviser. You should never have to pay for an initial estimate or for the name of an approved lender.
Misrepresentation of the risk of losing a home
Some advisers claim that you cannot lose your home if you take out a reverse mortgage. In reality, when one or more of the following situations takes place, a reverse mortgage becomes due prematurely, which means that the home is subject to foreclosure.
- The property is sold or the property’s title is transferred
- The borrower does not meet one or more of the mortgage requirements, such as keeping up with general maintenance or paying the property tax or home insurance
- The borrower is no longer using the home as a primary residence
- All of the borrowers have died
Not including a spouse on the reverse mortgage
Typically the older you are, the more money you can take out with a reverse mortgage. As such, some advisers encourage the older spouse to be the sole borrower for the loan. While this may seem like a great short-term solution, the younger spouse runs the risk of losing the home if the older spouse passes away first. When the older spouse passes away, the younger spouse is responsible for paying back the whole debt. Otherwise he or she will face foreclosure.
Not allowing you to select an HUD-approved reverse mortgage counselor
One of the required steps for obtaining a reverse mortgage is completing HUD-approved mortgage counseling. While lenders can suggest local or national counselors or counseling services, legally they cannot push specific individuals or agencies, nor can they set up appointments. There are plenty of legitimate lenders who will recommend reputable counselors, but there are also counselors who are in on the scam and will urge you to keep pushing forward with a specific company.
A thief can steal your identity or simply use personal contact information that you provided to take out a reverse mortgage in your name without your knowledge or consent. The best way to monitor this potential risk is to check your credit report. You can do this online for free in a matter of a couple minutes. Make sure that you recognize all of the items on the report, and look into any potential issues. The sooner you can head off the problem, the less damage gets done.
A free gift in order to pitch a paid offer
People are more likely to purchase a product or sign up for a service once they have accepted a free item, such as a lunch or dinner. While a freebie does not necessarily mean a scam, it is an indication that you’re going to hear a pitch that will cost you something.