How To Recognize A Reverse Mortgage Scam

May 13, 2024

5-minute read

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An elderly couple sitting on couch possibly calculating taxes or investments.

Reverse mortgages are loans that allow homeowners who are 62 and older to borrow against the equity in their home. The purpose of a reverse mortgage is to provide additional financial support and help seniors in retirement. But not everyone has a senior’s best interest in mind.

Many scammers use this type of loan to con older Americans out of their hard-earned money, their equity and, in some cases, their homes. Rocket Mortgage® doesn’t offer reverse mortgages, but we can still help you learn how to protect yourself or a loved one from reverse mortgage scams.

Common Reverse Mortgage Scams

New real estate scams pop up regularly. But even with so many new scams appearing, many fraudulent actors are still using the same reverse mortgage scams that have been around for decades.

Consider the common reverse mortgage loan scams discussed in detail next.

Foreclosure Scams

These scams target seniors who are already in jeopardy of losing their home to foreclosure. Scammers promise foreclosure relief using a reverse mortgage. While a reverse mortgage does pay off an existing mortgage, it comes with high closing costs and other fees. Plus, you’re still responsible for paying your property taxes, homeowners insurance and home maintenance costs. If you don’t stay current on those expenses, you could still lose your home. For seniors facing foreclosure, a reverse mortgage could be an additional expense – or put them in the same situation in the very near future with a reverse mortgage foreclosure.

If you need assistance making mortgage payments, you should consider alternatives such as loan modification, which may allow you to extend your loan term or lower your interest rate without refinancing.

Equity Theft Scams

Equity theft scams can involve several parties, including unscrupulous appraisers, attorneys and loan officers, who all work together to inflate an appraisal on a home. This makes it seem like the homeowner has more equity than they really have. The scammers will then convince the homeowner to get a reverse mortgage to cash in on their increased equity.

They handle all of the documents, close the loan and then take the loan proceeds, leaving the borrower with little to no equity or cash after paying closing costs and other fees.

House Flipping Scams

In this reverse mortgage scam, fraudsters convince senior homeowners to get a reverse mortgage on their existing home, then use the proceeds to buy another property. The additional property is usually purchased at a cheap cost by the scammers, then “fixed up” enough to look like a valuable investment. It’s only after the deal is closed and the scammers have pocketed their profits that the new homeowner realizes the house hasn’t been repaired enough to be a valuable investment and that they’ll likely lose money when it’s sold.

Fraud By Relatives Or Financial Planners

This type of senior reverse mortgage scam involves a crooked financial planner or adviser talking you into getting an unnecessary reverse mortgage. They’ll likely handle the money on their own and ultima