Reverse Mortgage Scams
When it comes to mortgages, there's no shortage of scams—from rental scams to "legal firms" offering to work with your lender to modify your mortgage to Short Sale "assistance." Now scammers are even preying on seniors, a highly vulnerable population, using their interest in home equity conversion mortgages (HECMs), a loan product growing in popularity, as the hook.
HECMs, also called reverse mortgages, are loans insured by the Federal Housing Authority (FHA) that allow seniors 62 and older to access the equity in their homes. Eligible borrowers must occupy their property as their primary residence, maintain the property, and pay property-related expenses like insurance and taxes on time.
Because reverse mortgages have unique requirements, and are very different than traditional mortgages in that they provide money and do not require monthly mortgage payments, they can be difficult to understand, making it easier for the scam artist to confuse and take advantage of victims.
According to the FBI, HECM-related fraud occurs in every region of the United States, but is most concentrated in states like Florida, New York and New Jersey, which have a disproportionally high density of senior homeowners.
The FBI notes these scams are successful because they target a trusting population and use fronts trusted by seniors, like churches and investment seminars, as well as television, radio, billboard, and mailer advertisements, to reach victims.
In some scams, seniors are offered free homes, investment opportunities, or foreclosure or refinance assistance.
Seniors are also used as straw buyers in property flipping scams. In this type of scam, an "investor" buys a foreclosed home for below market value. The investor then arranges for a bogus sale of the home to a senior who immediately takes out a reverse mortgage at an inflated value. The senior pays back the investor and owns a home for which they have paid nothing.
But it's not a victimless crime by any means. Because the FHA guarantees most reverse mortgages, taxpayers end up paying out the difference to the lender when the home eventually gets sold for less than the balance of the reverse mortgage.
The FBI offers five steps seniors (and their caregivers) can take to protect themselves from reverse mortgage scams.
- 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 that you do not fully understand.
- Do not accept payment from individuals for a home you did not purchase.
- Seek out your own reverse mortgage counselor.
If you are a victim of this type of fraud and want to file a complaint with the FBI, you can visit the agency's electronic tip line or contact your local FBI office. You may also file a complaint with HUD-OIG at www.hud.gov/complaints/fraud_waste.cfm or call HUD's scam hotline at 800-347-3735.