“How People Fell for the ‘Reverse Mortgage’ Scams”

By Liu Yan and Liu Wanyong

The scheme goes something like this: the owner of a house uses their home as collateral for a loan to earn a high monthly interest of 10  to 15 percent. They are supposed to get all the money back upon the maturity of the loan. This “reverse mortgage” scheme has been used successfully on many elderly people. However, the high interest that was promised disappeared, and the elderly people’s houses were quietly sold at low prices. These properties were transferred to others with the notarised documents containing the elderly people’s signatures by the “financier” who borrowed money with the house as collateral.

Since 2015, dozens of elderly people in Beijing have fallen victim to such scams. Some lost their real estate and some took on heavy debts. According to statistics compiled by the Beijing Elderly People Rights Protection Service Workstation and Zhicheng Lawyers Office in Beijing, Beijing Public Security Bureau Xicheng Branch alone has submitted more than 30 cases to the People’s Procuratorate. However, as the elderly people had signed and notarised a series of documents, it would be difficult for them to retake their own homes.

Evicted from homes as reverse mortgage dream shatters

On 17 October 2016, Zhang Ling’s family of three and her mother Li Jun were evicted from their only home by a group of people dressed in black. Long Xuewu, the person leading the clearance of the real estate, told Zhang Ling that her mother had borrowed several million RMB to set up a jewellery business and used the house as collateral. Zhang Ling called the police immediately but the police told her that as these people had the real estate certificate of title, she was obliged to move out. Any dispute would have to be settled in court.

On the day after she was evicted from her home, Zhang Ling found out that her house had been sold for 2.6 million RMB a week ago, but the current market price of the house, located in a school district on East 2nd Ring Road, was approximately 4.5 million RMB at the time.

She questioned her mother over and over again before her mother finally told her what happened.

It turned out that someone had recommended the “reverse mortgage” wealth management scheme to Li Jun in May 2016. This individual claimed that there was no risk and “everyone who used it had earned money”. Li Jun was intrigued and quickly introduced to Guang Yanbin.

After learning that Li Jun was divorced and had complete control of the real estate, Guang Yanbin told her that she just needed to lend him the property’s certificate of title for 3 months and allow him to manage the money obtained with the collateral. Li Jun would supposedly receive interest payments of more than 90,000 RMB each month. After the 3-month period expired, the principal would be repaid in full–and Li Jun could use that principal to redeem the certificate of title.

Li Jun was hooked. On the 12th floor of Building T3, Xihuan Plaza, Xizhimen, Beijing on May 19, she signed several documents with Long Xuewu, who was the intermediary between her and Wang Yue, the “financier” introduced by Guang Yanbin.

When Li Jun recalled the event afterwards, she thought that she was signing the “reverse mortgage” contract. Long Xuewu pointed at areas on the document for her to sign and did not show her the contents of the documents. She did not receive the documents after they were signed.

The following day, Long Xuewu brought her to the Real Estate Registration Center in Dongcheng District, Beijing to process the reverse mortgage. He wired 1.9 million RMB into her account in two separate remittances, and the money was transferred to Guang Yanbin within minutes. Guang Yanbin provided Li Jun with a loan receipt for 1.9 million RMB, which specified that “the loan shall be repaid in full in one payment on 20 August 2016 and the duration of the loan shall be 3 months”. The high interest rate promised by Guang Yanbin was not shown on the loan receipt.

Li Jun only received approximately 150,000 RMB in interest payments during the three months –and the principal was never repaid. She believed Guang Yanbin’s promise that he would get the money back from the “financier” and had failed to ask for repayment.

After the incident was exposed, Li Jun returned to the 12th floor of Building T3, Xihuan Plaza, Xizhimen, Beijing on 18 October 2016, accompanied by her daughter Zhang Ling. Zhang Ling realised that it was not a company that offered reverse mortgage services but the Beijing Fangzheng Notary Public Office. At the Notary Public Office, Zhang Ling requested the notarised documents signed by Li Jun, including a loan contract and a power of attorney letter.

The loan contract stated that Li Jun took out a loan of 2.3 million RMB for a loan period of 1 month at a monthly interest rate of 2%, and the parties agreed to notarise the creditor’ right document with compulsory enforceability for the loan contract.

If the loan was not repaid upon maturity, the “financier” may present the notarised documents to the court to apply for compulsory enforcement. Li Jun waived her rights to defence. In the power of attorney letter, Li Jun assigned the rights to the use of the house as collateral, transaction, transfer of ownership, tax payment, and even the right to collect payments to Long Xuewu.

With the power of attorney letter, Li Jun’s property was transferred and she was completely oblivious. According to the investigations by our reporter, the person who bought the real estate was Li Bohang, a shareholder of “Beijing Yuewu Xinxin Information Consulting Co., Ltd.”–where Long Xuewu was employed.

Our reporter tried to contact Long Xuewu with the telephone number specified on the contract but could not reach him. The reporter found the registered address of Yuewu Xinxin Information Consulting Co., Ltd. and the staff told the reporter that the address was the site of an incubator. It was only responsible for providing virtual registration services for companies. The company’s office was not there.

Dong Wang’s real estate was also processed through the same property transfer procedures. On 18 October 2016, the three-bedroom apartment in Zhichun Li, Beijing, with a value of nearly 7 million RMB, was sold online by someone for 1,000 RMB.

“Anyone who learned about this responded by asking whether that was the price per square metre, but that was the full price they received for selling the entire house.” Dong Wang’s daughter told our reporter that her parents also processed the so-called “reverse mortgage” with Guang Yanbin. They took out a loan of 2 million RMB from the “financier” introduced by Shao Nan.

Similar to Li Jun’s case, the money was only in Dong Wang’s account for a few minutes before it was transferred to Guang Yanbin. As Dong Wang later died, his children logged a dissenting registration in court due to an argument and dispute involving his estate. They then found that a contract had already been signed online for the real estate and it could not be transferred.

Elderly people claimed that they did not understand the documents they signed and suspected the notarisation office of violating procedures

Li Jun’s family was not the only family to be evicted from their home.

On 16 October 2016, Zhang Xiulan, who was nearly 80 years old, and her husband were evicted from their home. The house had an area of more than 60 square metres and was located within the East 3rd Ring Road in Xicheng District, Beijing. They later found out that the house was sold to “He Zhenguang” for 4.6 million RMB and the transfer was completed on 11 July 2016.

The same thing had happened. Zhang Xiulan had given the real estate certificate of title to Guang Yanbin for the “reverse mortgage” investment and wealth management project and signed a series of documents with instructions from Guang Yanbin.

After they were evicted from their own home, Zhang Xiulan and her husband spent the night at a 24-hour KFC near their house and sat in Tongren Hospital during the day.

By comparison, things turned out slightly better for the elderly man Wu Zhe. Because his son discovered his remittance form, his house was not transferred in secret. However, the borrower introduced by Guang Yanbin had applied for compulsory execution. The old couple’s bank cards were frozen by the court and they could not access their pension.

Tian Cheng was also a victim of the “reverse mortgage” scam, and he was the one who introduced Wu Zhe and Guang Yanbin. Although he received a substantial amount of interest at first, many “financiers” came to ask for their money back six months later. Wu Zhe said that many old people like Tian Cheng recruit downline victims. They receive a substantial finder’s fee for every elderly person they introduce to Guang Yanbin.

In October 2016, many elderly people were evicted from their homes and their children started to call the police or find lawyers to protect the rights of the elderly. At first, when the People’s Police saw the loan contracts and notarised documents for the compulsory enforcement of creditor’s rights, they believed that these were civil and economic disputes. They refused to conduct investigations.

It was not until many similar cases appeared that a criminal investigation was started for the elderly victims. Beijing Public Security Bureau Xicheng Branch imposed compulsory measures on Guang Yanbin. The “financiers” introduced by Guang Yanbin remained beyond the scope of investigations and they are still forcing elderly individuals to repay debts and forcing them out of their homes.

The notary procedures for more than 30 elderly people involved in these cases were processed at the Beijing Fangzheng Notary Public Office, Beijing Zhongxin Notary Public Office, and Beijing Guoli Notary Public Office.

The children of the elderly people found that the Notary Public Offices had become an insurmountable obstacle when they sought to protect their rights. On one hand, the elderly people had no legal documents related to the loan and the use of the real estate as collateral. They only had a handwritten loan receipt signed by Guang Yanbin and could only request documents from the Notary Public Offices that processed the notarisation. On the other hand, according to Article 27, Paragraph 2 of the Notary Law, after the notarial institution accepts a request for notarisation, it shall inform the party concerned of the legal significance and the possible legal consequences of the matter for which he requests notarisation, and shall keep a record of what it has informed of the party concerned and place it on file.

Li Jun stated that Long Xuewu asked her to sign her name on the desk in the Notary Public Office. They took a photo together afterwards. The notary did not explain or ask questions throughout the entire process, and they did not keep records.

However, Li Jun’s signature was on the loan contract, notary application, notarial certificate, and the power of attorney letter. The Notary Public Office stated that the signatures were the expression of the elderly person’s true intent, and it had the transcript for inquiries regarding the elderly person’s signatures as evidence.

After a series of complicated procedures, Zhang Ling finally saw the printed transcript for inquiries signed by the notaries Yang Hongzhou and the minute taker Gu Xuan.

In the transcript, the notary provided a detailed explanation of the legal responsibilities and risks for the notarisation of the loan and the power of attorney. Her signature was at the bottom of each page of the 6-page transcript. The transcript expressly provided that all notarisation materials shall be collected by the “financier”. This is how Li Jun never had any written document regarding the loan, mortgage, or power of attorney till she was evicted from her home.

Zhang Ling found that the transcript was almost exactly the same as the one used a month ago for an elderly person named Gao Ru, who was also defrauded. The only difference was the personal information. She questioned how two individuals who were completely different in terms of age, education, and background could have provided exactly the same answers to the same questions.

In a recording obtained by our reporter in November 2016, Director Wang Shigang of Fangzheng Notary Public Office explained: “This transcript has been standardised in the computer. With nearly 40,000 notarisations like this a year, the notaries and notary assistants process all such documents in a standardised manner. This is customary practice and does not cause the notarisation to be invalidated.”

Dong Wang’s daughter also said that her parents had no knowledge of the power of attorney for the sales of the property when they processed the notarisation at Beijing Guoli Notary Public Office.

In the notarisation video provided by the Notary Public Office, the reporter saw that the notary Feng Yue only asked about the loan collateral and did not mention anything about the notarisation of the power of attorney. Dong Wang’s signature on the signature column for the delivery receipt of the notarial certificate for the power of attorney was evidently different from his previous signatures. The transcript that was supposed to be filled out by the notary Feng Yue was written in handwriting that resembled that of the “financier” Yue Xiaonan.

The transcript of the interview with the elderly man Wu Zhe for whom Feng Yue had processed the notarisation had similar issues with the handwriting on the transcript. He has not yet received the delivery receipt of the notarial certificate for the power of attorney.

On July 13, our reporter went to Guoli Notary Public Office with Wu Zhe. Zhang Qing, the Director of the Notary Public Office, did not provide direct answers to the aforementioned questions and only promised the old gentleman that he would have documents ready within one week for him to photocopy.

According to public announcements from the Ministry of Justice in April 2017, in response to the issuance of notarial certificates by Beijing Guoli Notary Public Office for several false cases that caused people to lose their real estate due to sales or use as collateral, the Beijing Municipal Bureau of Justice revoked the notary licences of Li Tielin and Feng Yue, issued a warning to Guoli Notary Public Office, and imposed an administrative penalty with a fine of 200,000 RMB and confiscation of illegal proceeds. The Director of Guoli Notary Public Office Xue Weiping was dismissed due to his responsibilities as the legal representative.

Insufficient evidence makes it difficult to protect their rights and lawyers remind the elderly to protect themselves

The targeting of the elderly for large loans and the use of a power of attorney letter for selling the houses after the mortgage has become a popular scam. According to the information they provided, Shao Nan, Long Xuewu, and Yue Xiaonan played different roles in different cases. They may serve as the intermediary in a case and serve as the “financier” or buy the real estate in another. However, they do not have evidence proving that these people conspired to commit scams.

Guang Yanbin was arrested with the authorisation of the No. 2 Branch of the People’s Procuratorate of Beijing Municipality on 27 February 2017 due to his involvement in the scams. The lawyer Wu Jie is responsible for the pro bono legal aid program at Zhicheng Lawyers Office in Beijing, and she believes that there is still a long way to go to protect the rights of these elderly people.

“The most glaring thing in common in these cases is how they made full use of the elderly people’s inability to understand the law and the significance and concepts in the legal documents,” she said. “That’s how they convinced the elderly people to sign legal documents which completely forfeited their legal rights.”

“It is still a traditional Ponzi scheme. The first group of elderly people started to recruit downline victims. The money provided by downline victims was used to pay the upline, and then the entire chain broke.”

Wu Jie said that “even if Mr Guang is convicted of fraud, he has no capacity for repayment and the elderly people’s interests are already damaged.” Additionally, it is impossible to determine whether the elderly people were aware of the legal consequences when they signed the documents, it is difficult to find evidence favourable to the elderly.

Similar legal estate fights have appeared in disputes other than these “reverse mortgage” scams.

On 22 December 2016, No. 2 Intermediate People’s Court of Beijing Municipality published the “Reminder of Risks in Mortgage Loans”. There had been cases of commissioned sales of real estate and commissioned collection of real estate transaction payments involving mortgage loans in cases reviewed by the court. The disputes involving real estate transaction contracts and mortgage loans can be summarised as follows. The creditor lends a certain amount of funds to the borrower and requests the borrower to provide real estate and appoint the creditor to process the sales of the house, collection of payment for the house, and transfer of the title. If the borrower cannot repay the loan upon expiry, the appointed agent simply sells the house.

No. 2 Intermediate People’s Court of Beijing Municipality stated that such a transaction separates the legal relationships and deliberately evades the prohibitive regulations for “fluidity contracts”. They use the debtor’s disadvantaged position and desperation to seek unbalanced economic benefits.

The property owners do not participate in the actual transaction, which makes it difficult to obtain evidence and protect their rights. As legal supervision intensifies during the process, certain private lenders have continuously changed their tactics and revamped their methodology for obtaining the collateral. They use their advantageous position in the transaction for illegal infringement of property.

Wu Jie also wanted to remind elderly people to exercise caution when they enter new financial markets or investment markets–or when transactions involve major properties. They should not try new financial ventures before understanding the details. They should also remain vigilant against schemes introduced by people they already know.

She emphasised that elderly people must maintain positive communication with their children. “Elderly people must understand that, for all intents and purposes, they are vulnerable. They must have the courage and the willingness to seek help from their children.”