Reverse Mortgage Scams to AvoidReverse mortgages were created to assist seniors who were house rich but cash poor. Seniors typically are retired and do not have much income so they didn't qualify for a traditional forward mortgage. Seniors, who are more prone to scams, are an easy target for professional scammers. These scammers can be anyone from family members, to professionals within the financial service industry.
In fact, the situtation was bad enough, the FBI in conjunction with the U.S. Department of Housing and Urban Development issued a warning for seniors.
What Are Some of the Scams and How Do They Work?
- Getting a reverse mortgage to invest in whole life insurance or annunities. Some financial advisors may try to convince you that you can use the proceeds from a reverse mortgage to pay for annunities or whole life insurance, DO NOT, DO NOT. A whole life insurance and annunity only helps the advisor increase his commissions. There are very few times when either a whole life or annunity make sense for anyone.
- Family member or relative convincing someone to take out a reverse mortgage without the homeowner fully understanding what a reverse mortgage actually is and proceeding to steal all the money from the reverse mortgage.
- Be wary of contractors who may tell a homeowner that they can take out a reverse mortgage to make home improvements. Even with a reverse mortgage, the homeowner still must have enough money to pay for property taxes, HOA fees and home insurance. If a homeowner can't afford the cost of a home improvement, a reverse mortgage is the last thing they should consider. Better options would include down sizing to a smaller home or to try to apply for a home equity line of credit.
The Best Tip to Avoid Being ScammedDo not sign documents without fully understanding what you are agreeing to.
For more info, visit the FBI's website to read their official warning.