Last month the National Counsel On Aging released their list of 8 reverse mortgage myths. I have expanded on a few of them in some past posts and want to take the opportunity to talk about the final myth mentioned in the article. Myth #8 is entitled, "Most reverse mortgage borrowers who end up facing foreclosure were scammed."
It is sad that there are people in our world who look to take advantage of others, especially our seniors! It is also sad that this happens in the reverse mortgage industry, but that's why the 3rd party counseling is so important! This counseling is unique to the reverse mortgage; it's also mandatory and should cut down on the amount of misrepresentations made by unscrupulous loan officers. If you are looking to do a reverse mortgage, you should not just go to the top person on the list that your loan officer gives you. Ask around to others you know who have done a reverse mortgage and find out who they used. If you don't know anyone, call everyone on the list your loan officer gives you and choose the one you feel most comfortable with, whether it be by phone or in person. If you do this, it is pretty hard to be scammed by your lender because a good counselor will catch things that are not right.
The only way you can be foreclosed on in a reverse mortgage is if you fail to pay your property taxes and insurance, and if you let your property fall into disrepair. As long as you don't do those 3 things, it doesn't matter what else happens to your financial situation, you cannot be foreclosed on! Most reverse mortgage foreclosures tied to a scam happen when the borrower takes out a lump sum and then invests that money into something they don't know much about or have control over and the money gets lost. If your loan officer tries to sell you or push you into some financial product with your reverse mortgage proceeds, you need to run like Hell! This unfortunately is where most of the scams tied to reverse mortgages happen. It is not the loan itself that is causing the problems, it is what you do with the money.
If you want to invest the money you get from the reverse mortgage, that in a lot of cases is a very wise choice...and even if your loan officer recommends a financial advisor they know that doesn't mean its a scam. What it does mean is you need to do your homework. Talk to other financial planners about what you should do with your money, get second and even third opinions. You may even decide to use the adviser your loan officer told you about, that is fine after you have done your own research! It is also usually not advisable to get a reverse mortgage and use the money to invest with a family member. This unfortunately is the cause of much fraud involving revere mortgages. Remember in most cases you are dealing with your larges asset, don't take that lightly!
Here are a few things to remember when doing a reverse mortgage to make sure everything is on the up-and-up!
- Take the reverse mortgage counseling seriously. Make sure the counselor has a copy of the proposal documents your lender gave you.
- If you are investing the money you received from your reverse mortgage, do your homework. Use a trusted financial advisor you have used before. If you lender recommends one, get another opinion. It's also a good idea to not invest everything.
- If your loan officer says they are licensed to sell financial products and you should use them to invest your money, call your State Division of Real Estate, this in most cases is against the law to be involved in both transactions at once.
- Be cautious using they money to invest with a family member.
- In all cases if you feel like you are being targeted by a scammer, call 1-800-347-3735 to file a complaint with HUD.