What Is A Reverse Mortgage?
Many senior homeowners with equity in their residences have elected to take out reverse mortgages. These mortgages allow the homeowners to borrow a substantial portion of their equity and at the same time to continue living in the home while making no payments to the lender. The homeowner does continue paying taxes, insurance and other home-related fees. The purpose is to help seniors continue living in their homes.
So far, so good, but these mortgages do come with a few qualifications just like any mortgage. First, the homeowner must be 62 or older and have substantial equity in the home or own it free and clear. Second, the homeowner must continue living in the home. If the homeowner moves or sells the home, the reverse mortgage must be paid off.
Reverse Mortgage Fraud
It’s important to emphasize that the homeowner must continue to live in the home. In fact, that is the whole purpose of reverse mortgages and why lenders under guidelines from HUD and FHA are willing to offer them. Every year recipients of reverse mortgages must sign a Certificate of Occupancy attesting that they continue to reside in the property.
But, recently, a routine trial audit sent shock waves through the HUD Inspector General’s Office for HUD’s Reverse Mortgage Program [HECM]. The audit found that in the small sample of 159 recipients an astounding 86% of borrowers could not meet the residency requirements.
According to audit’s findings, the ruse was discovered because these homeowners were also receiving rental assistance under a federal voucher program FOR A DIFFERENT ADDRESS AT THE SAME TIME.
Further, of the 136 violators, 46 borrowers outright certified the property as their principal residence. In other words, they lied and filed a false statement to HUD. Initially, 80 borrowers refused to provide occupancy certifications and were later found NOT to be residing in the home. Of the 159, only 10 admitted they were not residing in their homes.
As a result of this audit, chagrined HUD officials with begin conducting residency re-certifications of all homes secured by reverse mortgages.
Penalties For Reverse Mortgage Fraud
For homeowners who have violated the residency requirements of HECM guidelines, the lender may require:
1) Immediate payment in full of the loans all outstanding principal balance and accrued interest.
2) Back payments going back to the onset of the fraud.
3) Failure to comply can lead to criminal penalties for the homeowner and any co-conspirators
It may seem hard to imagine hordes of senior citizens conspiring to defraud banks and the government departments which guarantee the loans, but that is exactly what has occurred.
So far the process has remained in the realm of civil litigation, but if the fraud is as widespread as the initial test group suggests, look for HUD to begin to proceed with high profile criminal prosecutions as a way of cleaning up this mess.