Reverse Mortgages: Seniors’ Unique Solution to Foreclosure and
Opportunities for Scams
I.
Reverse Mortgages
Lender pays homeowner from the equity in the home less any mortgages or other liens
FHA insures the majority
A.
Qualifications:
62 years of age
Own your home
B.
According to the US Census Bureau Report of 2011:
81% of the population age 65 and older owns their own home
30% of these are owned free and clear of any mortgages, amounting to nearly $1.9
trillion in equity*
* http://www.census.gov/hhes/www/housing/hvs/hvs.html
C.
By all accounts, Reverse Mortgage growth is set to explode as Baby Boomers reach the
retirement age of 65
In the next 20 years, from 2012 to 2032, 74 million Boomers will retire*
* http://transgenerational.org/aging/demographics.htm#ixzz1wNpiYMDt
D.
Increased growth of Reverse Mortgages means increased opportunities for fraud and
scams
Other factors increase the risk for fraud and scams targeted to senior citizens:
A vulnerable population group
Provides the senior homeowner with relatively easy access to a sizeable pool of cash
Reverse mortgages are harder to understand than traditional mortgages making it easier
for the scam artist to confuse and take advantage of victims
E.
The marketing of Reverse Mortgages includes aggressive sales methods:
Recruiting through local churches and “investment seminars”
Some salespeople call themselves "registered financial gerontologists" or “certified senior
advisers”
Try to sell other financial products, many are unnecessary and come with hefty fees
Frequent radio and TV ads and direct mail
They often use pitchmen like Henry Winkler, Robert Wagner, and Fred Thompson to
create a degree of comfort and familiarity among consumer prospects
II.
Reverse Mortgage Scams
According the FBI and the Department of Housing and Urban Development, Reverse
Mortgage Fraud is occurring in every region of the US
http://www.fbi.gov/scams-safety/fraud/seniors/intelbulletin_reversemortages
A.
There are primarily 5 types of Reverse Mortgage scams:
Foreclosure Rescue
Equity Theft
Free Homes for Seniors
Document Fraud
Investment Schemes
B.
Foreclosure Rescue Scam
Perpetrators target seniors in foreclosure
Initially led to believe they are obtaining a Reverse Mortgage
Then informed they do not qualify
Offered another type of loan, “The Rescue”
Perpetrators locate an investor to act as straw buyer with the help of a dishonest appraiser
A “forward” or regular mortgage is obtained transferring the property to the investor,
away from the senior and the cash goes to the perps.
The senior is notified by the investor/owner to either repurchase the home at a higher
price or find alternative living arrangements
C.
Equity Theft Scam
Perpetrators target foreclosed or distressed properties and seniors
Perps buy the properties using straw buyers who commit occupancy fraud
They recruit a senior to “purchase” the properties from the straw buyers, transferring the
deed to seniors with no exchange of money
Seniors occupy the property for at least 60 days
Perps arrange for seniors to obtain a Reverse Mortgage with aid of an inflated appraisal
Perps intercept the funds at the closing often with the help of the settlement attorney or
title agent
D.
Free Homes for Seniors
Perpetrators target seniors with advertisements for “free homes” and often seniors
willingly participate in this scheme
Perps recruit seniors to live in the home, paying only the taxes and insurance to live there
With the aid of an inflated appraisal, the Reverse Mortgage is obtained, proceeds go to
the perps
Banks do not realize there is a problem until the seniors die or move out
Any losses to the banks due to the false equity is passed to the FHA, which pays the
banks for any shortfall out of mortgage insurance premiums
E.
Document Fraud
Perpetrators target seniors by sending letters about their loan documents, such as the
seniors are entitled to a “Reconveyance Deed” of their home
Perps request money from seniors in order to provide them with copies of the
“Reconveyance Deed”, a document which should be on file with the lender
Perps indicate to seniors that they qualify for a Reverse Mortgage and request money,
sometimes thousands of dollars for information about how to obtain the Reverse
Mortgage
F.
Investment Schemes
Perpetrators target seniors who are interested in obtaining a Reverse Mortgage
Often with the assistance of a fraudulent reverse mortgage lender, perps convince the
seniors to “invest” in annuities, living trusts or other estate planning products with the
proceeds of the Reverse Mortgage
Seniors lose their money when the perps walk away with the funds
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