It seems like ads for reverse mortgages are everywhere, but many people don’t understand exactly what they are. A reverse mortgage lets homeowners 62 and older access the equity in their home, either in a lump sum or installments.
That money can provide needed income to people in retirement. The homeowner can stay in their home, but the lender has a claim on it. Payment on the loan is due when the owner sells the home or passes away.
The number of reverse mortgages has grown by a whopping 1,300% in the past two decades. Unfortunately, that popularity has given rise to scams that target seniors.
Unlike legitimate reverse mortgage lenders, scammers seek to steal the equity in the home while leaving the homeowner with the debt. These scams are often successful because of the confusion around reverse mortgages and the vulnerability of many seniors to scams in general.
There are many different types of reverse mortgage scams. Following are some of the things you should look out for:
- Advertisements that use the words “replace Social Security,” “retirement supplement” and/or “free income”
- Claims that the money is “federal retirement assistance” or part of a “government program.” A reverse mortgage isn’t money from the government.
- Property flipping offers: Scammers will buy distressed or other low-value properties and convince seniors to buy that property and take out a reverse mortgage on it for far more than it’s worth.
- Home improvement scams: Scammers will convince seniors that they need to have work done on their property to bring it up to code. They’ll then recommend that they pay for the work with a reverse mortgage.
- Single-spouse reverse mortgages: Scammers will convince a couple to get the mortgage in only one of their names. However, if that spouse dies, the loan becomes due, and the surviving spouse is stuck with it. Couples should always make sure both of their names are on the mortgage.
Before you consider a reverse mortgage, do your homework. The Department of Housing and Urban Development (HUD) has a list of FHA-approved lenders that’s searchable by state. That’s a good place to start.
Even with a reputable lender, reverse mortgages can be confusing. They aren’t the best choice for everyone. An experienced real estate attorney can provide guidance, whether you’re considering a reverse mortgage or you have questions or concerns about what you already have.