By all accounts, reverse home mortgage growth is set to explode. Baby boomers are reaching retirement and, for most, home equity makes up the greatest portion of their nest egg. Reverse mortgages will be the tools that numerous of these retirees will use to tap into this nest egg for retirement living expenses. The number of new HUD Home Equity Conversion Mortgages (HECM) already has increased more than percent in the original nine months of 2006 over the same amount of time one year ago.

But along with reverse home mortgage growth come increased probabilities for fraud and scams. Reverse mortgages are dissimilar from conventional mortgages in ways that make them beautiful vehicles for scam artists:

• reverse mortgages are merchandise specifically designed for and aimed to senior citizens, the population group most vulnerable to fraud;
• scam artists know that a reverse mortgages provide the senior homeowner with comparatively easy access to a sizeable pool of cash; and,
• reverse mortgages are harder to grasp than traditionalisti mortgages making it posing no difficulty for the scam artisan to confuse and take vantage of victims.

In this article we look at a heap of of the tactics scam artists are using and the precautions reverse mortgage borrowers may take to protect 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 vantage of counseling and other chances to learn with regards to reverse mortgages.

All three major reverse mortgage programs – HUD HECM, Fannie Mae’s Home Keeper and Financial Freedom – require potential borrowers to have counseling with an independent counselor particularly trained in reverse mortgages before taking out a loan.

In a recent Detroit-area fraud case, a corrupt lender was competent to keep the borrower in the dark when it comes to the amount she was entitled to borrow. She thought her loan would be for $61,000 when in fact she was borrowing $103,000. Guess who pocketed the $42,000 difference? A exhaustive counseling session would have given the homeowner an exact idea of the true amount she was entitled for. Unfortunately for the victim, the prosecutor in the case says this never happened:

“A counseling meeting explaining the reverse mortgage procedure was required by Financial Freedom before the loan could be processed. Mr. James allegedly informed Ms. Schultz that he would be capable to waive the counseling meeting by just asking a few questions over the phone.”

Precaution: Although counseling by telephone is allowed, it is always best to meet face-to-face with the counselor. If you find that anybody you’re working with in the procedure proposes that counseling may be done quickly over the phone or other than as supposed or expected downplays the importance of pre-loan counseling, be highly suspicious.

Scam Tactic Two – Forgery

Forgery is a key share of a good deal of scams. In the Detroit case cited above, the lender requested the title company to prepare two checks payable to the homeowner: one for $61,000 which the homeowner received and a second one for $42,000 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 consultant opened an account for the proceeds of the loan and forged the victim’s name to gain access to funds.

Another California case reported in the Santa Cruz Sentinel shows how dangerous it may be to sign “unfinished” documents:

Mrs. Sally Scott is 66 years old. While she receives Social 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 versus their homes and does not require repayment as long as they live there. Seeking a little financial cushion, she spoke to a mortgage broker regarding a $10,000 reverse mortgage.

When she received the loan papers, she noticed that the loan amount was $200,000. The broker promised that he’d alter the figure, but insisted that she sign the paperwork first. Trusting the broker, Mrs. Scott signed.

A week later, she received a check for $200,000. She without delay notified the broker, who apologized for the fault and instructed her to wire the cash back. As it turned out, the account that Mrs. Scott returned the cash 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. Carefully protect access to your checking and other accounts. Review and reconcile checking account and loan affirmations regularly. If you find something awry, contact your financial institution immediately.

In the Detroit case cited above, the victim caught on to the scam when she received a loan statement indicating the remainder of her reverse mortgage (including interest) totaled $131,000.

Also, take vantage of the free credit reports available to you underneath federal law. Reviewing your credit report each year is likewise a good way to catch unauthorized financial activenesses underneath 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 support them comprehend the loan process, find a lender or, generally, better perceive what they are getting into. Some scammers have seized on this to offer – for a fee – reverse mortgage info and services that are available to buyers at no charge.

For example, a lot of senior householders have been contacted by firms providing to support them in finding a reverse mortgage lender, in interchange for a part of the loan. This type of arrangement ought to always be avoided. According to HUD’s website:

HUD does NOT commend using an estate planning service, or any service that charges a fee just for referring a borrower to a lender! HUD provides this selective information without cost, and HUD-approved housing counseling agencies are available for free, or at minimal cost, to provide information, counseling, and free referral to a list of HUD-approved lenders. Call 1-800-569-4287, toll-free, for the name and emplacement of a HUD-approved housing counseling agency near you.

Precaution: Walk away from any person who offers to find a reverse mortgage lender for a fee. Use the internet to find free info regarding reverse mortgages or, read one of the various splendid books that have been published in recent years.

If you feel you have need for a professional financial planner to valuate your overall circumstance – including the reverse mortgage decision – find a certified financial planner (CFP) who works on a fee-only basis and who is welleducated of reverse mortgages (many aren’t).

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

The most frequent form of reverse mortgage – the Home Equity Conversion Mortgage (HECM) – is an official program of the U.S. Department of Housing and Urban Development (HUD). However, neither the HECM program nor other reverse mortgage programs are marketed directly to senior householders by government employees.

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

Precaution: Be sure you know who you are dealing with and what establishment they represent. Do not be timid when it comes to asking for info such as their home office emplacement and phone number. Use resources like HUD and the National Reverse Mortgage Lenders Association (NRMLA) to check out the company.

Scam Tactic Five – Bundling Things with Reverse Mortgage Financing

Smart buyers recognise that the best way to shop for a car is to distinguished the constituents of the dealing – purchase, financing and trade-in – from each another. With a bundled transaction, it’s easy for the buyer to be befuddled and not grasp the unfeigned cost of the overall deal. What appears to be a “great price” on the car may mask exorbitant finance charges or a low trade-in value.

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

In one Seattle-area case, elderly buyers were told that living trusts must be purchased in order to obtain 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 consultant steered the homeowner to a home fix contractor who was party to the scam and who grossly overcharged the victim for fix work.

If you find yourself dealing with an individual who attempts to bundle a reverse mortgage with another product or service or steer you to a queer contractor/lender, be highly suspicious. If you feel at all uncomfortable or that the person 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 finding you. Homeowners ought to keep away from doing business with any individual 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 choices – including a reverse mortgage. Keeping these conclusions distinguished will protect you from possible fraud and help ascertain you get the most for your money.

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