A reverse mortgage is a financial product that is available to homeowners aged 62 and older that allows them to convert part of their home equity into cash. Seniors strapped for cash may believe a reverse mortgage is the answer. But reverse mortgages are expensive: origination fees and closing costs are high and interest rates, annual fees and charges accrue from day one. Seniors strapped for cash may have other options to raise money like a home equity loan or downsizing to a cheaper home. Brokers looking to pocket a reverse mortgage commission may not explore these options. In order to get a commission, reverse mortgage brokers and promoters may not explain how reverse mortgages work over time or disclose the fees and charges and the results can be disastrous for the senior. Unscrupulous mortgage brokers often scam seniors too in more complicated schemes, as discussed below. If you believe that you or a loved one has been subjected to such a scam, contact a California financial elder abuse attorney today.
What is a Reverse Mortgage Scam?
According to the FBI, perpetrators of reverse mortgage scams typically recruit seniors through local churches, free lunch seminars, and various types of advertisements. These fraudulent brokers often entice seniors with free homes, investment opportunities, or foreclosure or refinance assistance. In the classic scenario, the scammer will obtain a reverse mortgage in the name of the recruited homeowner to convert equity in the home into cash. The scammer will then keep the cash and pay a fee to the senior or keep the full amount without the senior’s knowledge. The appraisals of the home are then inflated and the lender usually does not detect the fraud until the homeowner dies and the actual value of the property becomes apparent.
Types of Reverse Mortgage Scams
More specialized types of reverse mortgage fraud also exist in the form of equity theft and foreclosure rescue. In an equity theft scam, the perpetrator purchases a home that is in foreclosure or distressed or abandoned. The scammer will then sell this house to a senior and encourage them to take out a reverse mortgage after occupying the home for 60 days. Once the transaction is completed, the scammer keeps the proceeds of the reverse mortgage.
In a foreclosure rescue scam, the perpetrator seeks out seniors who are in foreclosure or otherwise at risk of losing their homes. The scammer will then convince the senior to take out a reverse mortgage to save the property, but will then inform the senior that he or she does not qualify. The scammer will then encourage the senior to take out a regular mortgage instead, at which point the property and its equity are transferred to the scammer. In other cases, reverse mortgage fraud is not so blatant. Often, a broker is not trying to intentionally defraud the senior, but will nonetheless push a reverse mortgage on the senior when the broker knows that that it is not the best option.
How to Avoid Reverse Mortgage Scams
Seniors seeking reverse mortgages are encouraged to keep these tips in mind:
- Do not respond to unsolicited advertisements
- Be suspicious of anyone claiming that you can own a home with no down payment
- Do not sign anything you do not understand
- Do not accept payment from individuals for a home you did not purchase
- Seek out your own reverse mortgage counselor
Contact a California Financial Elder Abuse Attorney Today for Help
If you believe that you or a loved one has been defrauded in a reverse mortgage scam, contact the financial elder abuse attorneys at the Evans Law Firm by calling (415) 441-8669 or by email. We can help guide your case through a jury trial or toward an equitable settlement. We handle cases involving physical and financial elder abuse, qui tam and whistleblower law, nursing home abuse, whole life insurance and universal life insurance fraud, and indexed, variable, and fixed annuities fraud.