Avoiding Reverse Mortgage Pitfalls and Scams

Reverse mortgages are an excellent option for seniors who want to supplement their retirement incomes and take advantage of equity in their homes as part of the estate planning process. Most reverse mortgage lenders are reputable and are diligent in their business practices, but consumers should be aware of a few of the most common scams and frauds that are perpetrated across the nation, swindling many seniors out of thousands of dollars of their hard earned equity.

Because reverse mortgage loans involve one of your largest assets (your home) this type of fraud can have serious implications on your estate planning and trusts. There are several types of reverse mortgage scams that can end up costing you thousands and even tens of thousands of dollars in equity in your home if you become a victim. Working with a certified reverse mortgage loan lender and learning about common reverse mortgage pitfalls, are important protections against these frauds.

Common reverse mortgage pitfalls and scams include:

• Charging for information that is provided to all people for free.
  Beware of estate planning companies that charge for reverse mortgage information provided free from Housing and Urban Development (HUD). Typically these estate planning companies charge for this information as part of an estate planning program. Seniors that sign up for these programs are unaware that these firms are collecting thousands of dollars by charging a fee of six to 10 percent of the total amount borrowed. These fees cost the victims $6,000 to $10,000 on a $100,000 reverse mortgage. HUD has recently issued a directive to top reverse mortgage lenders that offered reverse mortgages insured by the Federal Housing Administration (FHA) to stop doing business with these companies.
• Unethical reverse mortgage terms.
  Some reverse mortgage lenders include extraneous fees and terms into their contracts, which can have a serious effect on a senior's equity, estate planning and trusts. Some lenders have used shared equity or shared appreciation terms, which gives the lender the right to collect a portion of the appreciation when the home is sold or refinanced. The cost of these provisions can run into the tens of thousands of dollars as the home appreciates. These rising cost provisions eat up equity without providing any additional benefit to the homeowner. Read your contracts carefully, and question any fees or terms that you do not understand or expect to avoid the disadvantages of a reverse mortgage.

Protection from Reverse Mortgage Pitfalls

There are several things that you can do to protect yourself from falling into reverse mortgage scams.

• Speak with a HUD-approved reverse mortgage counselor. The counselor will help you understand reverse mortgages and jumbo reverse mortgages—and help you evaluate your situation.
• Obtain several offers from different reverse mortgage lenders in order to compare different reverse mortgage loan options. The rule of thumb is to get at least three separate offers so that you have a good comparison of the terms offered when completing a reverse mortgage purchase.
• Make sure you understand all the terms and conditions within the reverse mortgage contracts. Your reverse mortgage counselor can guide you through the contracts.
• You generally have three business days after signing the loan document to cancel it for any reason. If you suspect that a company is operating in violation of the law, let your reverse mortgage counselor know.

If you have reverse mortgage and estate planning questions, let our reverse mortgage specialists answer your questions free of charge. Click here for more reverse mortgage information.