Five Reverse Home Mortgage Scams to Watch Out For

By all accounts, reverse home mortgage increase is set to explode. Baby boomers are reaching withdrawal and, for most, home equity makes up the largest part of their nest egg. Reverse mortgages will be the tools that many of these retirees will use to tap into this nest egg for withdrawal living expenses. The amount of new Hud Home Equity Conversion Mortgages (Hecm) already has increased more than percent in the first nine months of 2006 over the same duration one year ago.

But along with reverse home mortgage increase come increased opportunities for fraud and scams. Reverse mortgages are distinct from customary mortgages in ways that make them provocative vehicles for scam artists:

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reverse mortgages are products specifically designed for and targeted to senior citizens, the citizen group most vulnerable to fraud; scam artists know that a reverse mortgages contribute the senior homeowner with relatively easy way to a sizeable pool of cash; and, reverse mortgages are harder to understand than customary mortgages making it easier for the scam artist to confuse and take benefit of victims.

In this description we look at some of the tactics scam artists are using and the precautions reverse mortgage borrowers can take to safe themselves.

Scam Tactic One - Downplay Pre-Loan Counseling

An educated borrower is the scam artist's worst enemy - but it's up to the borrower to educate themselves and take benefit of counseling and other opportunities to learn about reverse mortgages.

All three major reverse mortgage programs - Hud Hecm, Fannie Mae's Home Keeper and Financial leisure - need inherent borrowers to have counseling with an independent advisor specially trained in reverse mortgages before taking out a loan.

In a recent Detroit-area fraud case, a corrupt lender was able to keep the borrower in the dark about the amount she was eligible to borrow. She belief her loan would be for ,000 when in fact she was borrowing 3,000. Guess who pocketed the ,000 difference? A accepted counseling session would have given the homeowner an literal, idea of the true amount she was eligible for. Unfortunately for the victim, the prosecutor in the case says this never happened:

"A counseling meeting explaining the reverse mortgage process was required by Financial leisure before the loan could be processed. Mr. James allegedly informed Ms. Schultz that he would be able to waive the counseling meeting by just asking a few questions over the phone."

Precaution: Although counseling by telephone is allowed, it is all the time best to meet face-to-face with the counselor. If you find that whatever you're working with in the process suggests that counseling can be done quickly over the phone or otherwise downplays the importance of pre-loan counseling, be extremely suspicious.

Scam Tactic Two - Forgery

Forgery is a key part of many scams. In the Detroit case cited above, the lender requested the title enterprise to put in order two checks payable to the homeowner: one for ,000 which the homeowner received and a second one for ,000 which the corrupt lender endorsed with a forged signature and deposited into his own account.

In one California case, two con artists - one working as a financial advisor the other a handyman - convinced an elderly homeowner to take out a reverse mortgage to pay for home repairs. The financial advisor opened an catalogue for the proceeds of the loan and forged the victim's name to gain way to funds.

Another California case reported in the Santa Cruz Sentinel shows how hazardous it can be to sign "unfinished" documents:

Mrs. Sally Scott is 66 years old. While she receives group security and pension checks, she still can't make ends meet. She saw an ad for a "reverse" mortgage - a loan that allows seniors age 62 or older to receive cash by borrowing against their homes and does not need repayment as long as they live there. Seeking a little financial cushion, she spoke to a mortgage broker about a ,000 reverse mortgage.

When she received the loan papers, she noticed that the loan amount was 0,000. The broker promised that he'd convert the figure, but insisted that she sign the paperwork first. Trusting the broker, Mrs. Scott signed.

A week later, she received a check for 0,000. She immediately notified the broker, who apologized for the mistake and instructed her to wire the money back. As it turned out, the catalogue that Mrs. Scott returned the money to belonged to the broker. He disappeared, leaving her with a mortgage in default and no way to repay the loan.

Precaution: Never sign documents with blanks to be filled in or corrections to be made later. Thought about safe way to your checking and other accounts. Report and reconcile checking catalogue and loan statements regularly. If you find something awry, experience your financial custom immediately.

In the Detroit case cited above, the victim caught on to the scam when she received a loan statement indicating the balance of her reverse mortgage (including interest) totaled 1,000.

Also, take benefit of the free credit reports available to you under federal law. Reviewing your credit description each year is also a good way to catch unauthorized financial activities under your name.

Scam Tactic Three - Charging for Free Reverse Mortgage Information

The complexity of reverse mortgages means that it is natural for borrowers to seek assistance and guidance to help them understand the loan process, find a lender or, generally, great understand what they are getting into. Some scammers have seized on this to offer - for a fee - reverse mortgage data and services that are available to consumers at no charge.

For example, some senior homeowners have been contacted by firms gift to help them in looking a reverse mortgage lender, in transfer for a division of the loan. This type of arrangement should all the time be avoided. Agreeing to Hud's website:

Hud does Not recommend using an estate planning service, or any aid that charges a fee just for referring a borrower to a lender! Hud provides this data without cost, and Hud-approved housing counseling agencies are available for free, or at minimal cost, to contribute information, counseling, and free referral to a list of Hud-approved lenders. Call 1-800-569-4287, toll-free, for the name and location of a Hud-approved housing counseling group near you.

Precaution: Walk away from whatever who offers to find a reverse mortgage lender for a fee. Use the internet to find free data about reverse mortgages or, read one of the several exquisite books that have been published in recent years.

If you feel you have need for a pro financial planner to assess your thorough situation - together with the reverse mortgage decision - find a certified financial planner (Cfp) who works on a fee-only basis and who is knowledgeable of reverse mortgages (many aren't).

Scam Tactic Four - Posing as a Government or Non-Profit Representative

The most favorite form of reverse mortgage - the Home Equity Conversion Mortgage (Hecm) - is an official schedule of the U.S. group of Housing and Urban development (Hud). However, neither the Hecm schedule nor other reverse mortgage programs are marketed directly to senior homeowners by government employees.

Unscrupulous reverse mortgage salesmen have been known to laid out themselves to elderly homeowners as government representatives or volunteers for non-profit organizations.

Precaution: Be sure you know who you are dealing with and what assosication they represent. Do not be timid about asking for data such as their home office location and phone number. Use resources like Hud and the National Reverse Mortgage Lenders relationship (Nrmla) to check out the company.

Scam Tactic Five - Bundling Things with Reverse Mortgage Financing

Smart consumers know that the best way to shop for a car is to isolate the parts of the transaction - purchase, financing and trade-in - from each another. With a bundled transaction, it's easy for the buyer to be befuddled and not understand the true cost of the thorough deal. What appears to be a "great price" on the car may mask exorbitant finance charges or a low trade-in value.

Similarly, a coarse tactic of scam artists is to bundle reverse mortgage financing with something else such as home improvements, annuities, risky investments, living trusts or other estate planning products.

In one Seattle-area case, elderly consumers were told that living trusts must be purchased in order to fetch a reverse mortgage. In another case, seniors were encouraged to take out a reverse mortgage and use the proceeds to "invest" in truck-mounted billboards.

Frequently, two or more scammers work as a team. For example, in the California case cited earlier, an unscrupulous financial advisor steered the homeowner to a home fix undertaker of a package deal who was party to the scam and who grossly overcharged the victim for fix work.

If you find yourself dealing with someone who attempts to bundle a reverse mortgage with another stock or aid or steer you to a single contractor/lender, be extremely suspicious. If you feel at all uncomfortable or that the someone is using high-pressure sales tactics, walk away.

Precaution: When home improvements or estate planning services are needed, shop for the best deal. It's best for you to find what you're looking for rather than them looking you. Homeowners should avoid doing enterprise with whatever who comes uninvited to the door, makes an unsolicited phone call or whose name is found randomly on a flier.

When you've found the best deal, then weigh your financing options - together with a reverse mortgage. Retention these decisions isolate will safe you from inherent fraud and help ensure you get the most for your money.

Five Reverse Home Mortgage Scams to Watch Out For