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Reverse Mortgage Fraud Aims at Stealing Seniors’ Homes

As the number of senior citizens grows, new reverse mortgage scams seek to rob them of the one thing they need the most: their homes.

By Kelsey Tokar, NCPC Staff

A small model house resting on a calculatorAs more members of the baby boomer generation turn 65, scams that take advantage of vulnerable senior citizens are increasing. The latest is reverse mortgage fraud. Crime prevention practitioners and those who work with the elderly should keep an eye out for this fraud, which can hurt senior citizens in the worst possible way: by stealing their homes.

Ninety-five percent of reverse mortgages are insured by the Federal Housing Administration, part of the U.S. Department of Housing and Urban Development, and are called Home Equity Conversion Mortgages, or HECMs. Because of their sheer number, they account for much of reverse mortgage fraud.

Reverse mortgages have increased rapidly in the past year. According to the FBI, reverse mortgages soared 1,300 percent between 1999 and 2008. Because of the current recession, seniors with dwindling retirement funds are opting to tap their home equity to get either a monthly payment or a lump sum to help improve their standard of living. Once they do so, their monthly payments cease. However, when the resident passes away or moves out permanently, ownership of the house is transferred to the bank or lender that provided the reverse mortgage. As the senior population is projected to grow rapidly over the next few decades, efforts to protect seniors from reverse mortgage fraud and exploitation are increasingly important.

One of the most common types of reverse mortgage fraud is known as foreclosure rescue. In this case, perpetrators attract seniors who are in jeopardy of losing their homes to foreclosure. Perpetrators promise the senior that their reverse mortgage program, which may not be a reverse mortgage program at all, will allow the senior to stay in the house. Once the senior has agreed to the plan, and a crooked appraiser inflates the value of the house, the perpetrators obtain a reverse mortgage. Once the reverse mortgage is obtained, the property title is transferred to the perpetrator who takes ownership of the house and the equity. The seniors are then left with no money and no house.

A scammer comes to the front doorAnother type of scam is equity theft. Equity theft takes place when a perpetrator locates a foreclosed or abandoned property and purchases it. The perpetrator then aims advertising at local seniors, and, when he has found a “mark” to purchase the property, transfers the property deed. After the senior has lived in the house long enough to qualify for a reverse mortgage, the perpetrator helps him apply for a lump sum loan, using an inflated appraisal conducted by a crooked appraiser. At the closing of the house, the perpetrators run with the lump sum, leaving the senior with little or no money.

Seniors should also be made aware of reverse mortgage counselors who charge for information that is available free of charge from HUD. In order to receive an HECM, seniors are required to consult a HUD-approved reverse mortgage counselor, free of charge, to learn more about the program and ensure they understand it in its entirety. However, many seniors have been scammed into paying thousands of dollars for this free information by signing contracts with companies that charge 6 percent to 10 percent of the total amount borrowed through a reverse mortgage. To ensure that a senior will not be charged for this free information, help him or her find a HUD-approved reverse mortgage counselor by calling 888-466-3487 or visiting this HUD office. It’s also important that non-HECM reverse mortgage candidates get proper counseling. They should check out the organizations listed on the website above, consult an attorney, or talk with their local banker.

While reverse mortgage fraud may be on the rise, the FBI has issued precautions that crime practitioners can pass on to senior citizens and other interested parties.

  • Do not respond to unsolicited advertisements or offers.
  • Be prepared to say “no” to anyone you suspect is not on the level.
  • Do not sign anything that you do not fully understand.
  • Seek out your own reverse mortgage counselor, perhaps at a financial institution you trust.

These guidelines can help a senior citizen steer clear of reverse mortgage fraud. Seniors who do fall victim to a reverse mortgage scam can file a complaint with their local FBI office or with HUD. For more information on reverse mortgage fraud, read the FBI’s Intelligence Bulletin.