Reverse mortgages are fairly complex transactions, also known as Home Equity Conversion Mortgages (HECMs). There are two typical types: “Refi-reverse” and “Purchase money reverse.” In a Refi-reverse,” the homeowner obtains money from the lender for a part of the home’s equity. In a “Purchase money reverse,” the homeowner receives money from the lender toward the purchase of another home. Under both types, the senior does not have to repay the lender for as long as the senior lives in the residence. However, Refi-reverse mortgages fund only a portion of the home’s value, such that equity remains in the property. Purchase money reverse mortgages, on the other hand, require a significant down payment from senior borrowers to establish equity in the property.
Fraud may occur if the arrangement was designed to defraud a lender or if documents were falsified. In some cases, seniors have been recruited by fraudsters with false promises. The senior may have taken a lump sum equity payment after the reverse mortgage process was completed, lived in the home for sixty days and then found that their lump sum payment was either stolen, or that it was not enough to cover their long-term expenses. The broker may benefit from selling the mortgage to a third party and benefitting from fees while the senior may be evicted from their home without the ability to pay HOA fees, maintenance or other expenses. This conduct is not only criminal, it may ultimately transcend into a new housing market bubble.
According to a recent New York Times story, the number of reverse mortgages has declined in recent years but the rate of default is at a record high. The percentage of default has risen from two percent to 9.4 percent in just ten years. Borrowers are putting their nest eggs at risk by increasingly taking out loans at younger ages and in lump sums. No doubt the lingering recession is a factor.
Now that the federal government has announced its aggressive stance on prosecuting these cases, what does it mean for the real estate industry? As in many cases where law enforcement officials are anxious to demonstrate that they are “tough on crime,” innocent people may get caught up in a dragnet and investigators may become overzealous and violate the rights of the accused. There is no doubt that fraud should be aggressively policed but there is never an excuse to violate the United States Constitution. Prosecutors, in their zeal to get a conviction, may make mistakes or take a case to trial without adequate evidence. But with the full weight of the federal government behind them, they may still be able to make a fairly strong case. A highly skilled and experienced white collar criminal defense attorney is essential in such cases.
We may be able to find that law enforcement officials did not have authorization to collect certain evidence. Or we may find that a homeowner was perfectly aware of the risks and consequences possible from a reverse mortgage and proceeded anyway. In some cases, a senior may experience “buyer’s remorse” and want to blame someone. This may lead to false accusations of fraud. Prosecutors must prove that fraud was intentionally committed. Perhaps a mistake was made in the transaction. Mistakes do not indicate fraud.
If you have been accused of reverse mortgage fraud, there are many options for your defense. Though no two cases are identical, they are nearly always complex and require white collar criminal defense attorneys who have extensive experience in this area of the law. For insight about reverse mortgage fraud and advice on what action to take if you are being investigated for mortgage fraud, call Criminal Defense Attorney Ashley D. Adams at 480-219-1366.