Last week’s Wall Street Journal carried an article about real estate scams targeting older Americans . It said, “Reverse-mortgage fraud, typically committed by homeowners’ relatives, caretakers or financial advisers, has also been cropping up recently in schemes to unload distressed real estate. Regulators cite cases in which real-estate speculators bought properties on the cheap and then sold them, using inflated appraisals, to senior citizens willing to take out reverse mortgages.”
Some of our clients have reverse mortgages, but so far we haven’t seen this problem in our caseload. That’s not to say we won’t. The article went on to say that both HUD and the FBI have seen an increase in reverse mortgage fraud cases.
Driving Reverse Mortgage Fraud
A reverse mortgage allows homeowners to convert their home equity into cash. Instead of writing a check to the bank each month, the bank pays the homeowner, who can elect to receive a lump sum, a line of credit or monthly payments. As the stock market has deflated, many older Americans’ retirement funds have shrunk as well. An increasing number of them are turning to reverse mortgages to fund their basic expenses; HUD forecasts about 165,000 will be originated in 2009, up from 43,082 in 2005 and compared to 112,000 in 2008.
This year Congress earlier this year temporarily raised the maximum amount homeowners can borrow against, from $417,000 to $625,500, making the loans ‘more lucrative for misdeeds,’” said Anthony Medici, a special agent in the Office of Inspector General”s Criminal Investigation division.
If you’re considering a reverse mortgage, our best advice is to engage a qualified real estate attorney to review the documents and give the transaction a “legal sniff test.” We hope not to see victims of reverse mortgage fraud in our offices seeking bankruptcy counseling or protection.