Financial scammers are using reverse mortgages to rip off the elderly. Protect yourself by knowing the law and the scams.

In the Quentin Tarantino film Jackie Brown, an airline attendant employs a complicated scheme to outsmart a gun runner and an ATF agent. Jackie manages to fool everyone and get away with the cash, which is a great story-as long as you're not the victim.

When it sounds too good to be true

Reverse mortgage scammers are good at what they do. They sell you on the dream of financial security, and they have charts, graphs, and customer testimonials to back them up. There's only one problem: none of it's true.

These scammers are typically disguised as financial advisors. They might call you on the phone, send you a brochure in the mail, or just drop by your home unannounced. Under the guise of analyzing your financial situation, the advisor may recommend a reverse mortgage, and then talk you into using that money to buy life insurance and annuity products. While the argument for this strategy will be convincing, the reality is that these fee-intensive products will often do nothing but drain the value of your assets. Victims of reverse mortgage fraud typically end up in a pit of debt, with no access to their cash.

Reading the red flags

With respect to reverse mortgages, you can't go wrong by being overly cautious about accepting financial advice. When discussing reverse mortgages with a broker or advisor, be on the lookout for these warning signs:

  • The advisor provides recommendations on how to use the money generated from your reverse mortgage. This advice might involve annuity products or simple home repairs through an approved contractor. In either scenario, you may end up paying out a lot and receiving very little.
  • The advisor downplays the importance of mandatory counseling. Federal law requires that you attend a session with an independent counselor before funding a reverse mortgage. Use this opportunity to get feedback from this professional on how you intend to use the reverse mortgage.
  • The advisor offers to help you find a reverse mortgage for a fee. Never pay for this information; you can get free lender referrals from the HUD (Department of Housing and Urban Development) website.
  • You're asked to sign loan paperwork that's not completely filled out. The most aggressive scammers will try to increase the loan amount without your knowledge and then pocket the difference.

If you're presented with one of these scenarios, start by delaying any financial purchases, including the reverse mortgage. Pick up the phone and call some trusty friends or family members, tell them what's happening, and ask for advice. An objective opinion can help you determine the difference between a reverse mortgage scam and a reasonable financial strategy.

Jackie Brown may have left town with $450,000 in gun running money, but the only person who should get away clean with your cash is you.

Published on September 28, 2008