Senior couple reviewing finances after reverse mortgage scam.

How To Recognize A Reverse Mortgage Scam

May 13, 2024 5-minute read

Author: Victoria Araj


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 ultimately use the proceeds for their own financial gain.

Unfortunately, this can happen with relatives of the borrower as well. A loved one may convince you to get a reverse mortgage and give them the proceeds. Or they may coerce you into giving them power of attorney, which allows them to make financial decisions for you, including getting a reverse mortgage and putting the loan proceeds into their own accounts.

Veteran Reverse Mortgage Scams

It’s important to remember that the Department of Veterans Affairs (VA) doesn’t currently offer any reverse mortgage loans and there are no reverse mortgages specifically for veterans. If someone is trying to sell you a reverse mortgage specifically for veterans or one that’s offered by the VA, it’s a scam.

If you’re a veteran and having trouble making monthly mortgage payments, a VA refinance – or VA Interest Rate Reduction Refinance Loan (IRRRL) – may help you lower your interest rate to make monthly payments more manageable.

Fraud By Contractors

You should be leery of any contractor who suggests a reverse mortgage as a funding option for a home project. While many borrowers do use a reverse mortgage to help fund home renovations, it’s often for improvements that they themselves noticed and wanted.

A reverse mortgage scam along these lines often goes something like this:

  1. First, a contractor approaches the homeowner unsolicited, claiming they noticed something wrong with the home.
  2. Next, the contractor uses strong language to induce fear into the senior, claiming the repairs are necessary.
  3. The contractor provides an estimate that’s much higher than the actual repair costs.
  4. The contractor suggests a reverse mortgage loan as a free way for the homeowner to pay for the repairs.
  5. The homeowner takes out an unnecessary reverse mortgage and pays for the repairs.

The truth is, most of these contractors are unlicensed, and their repairs – along with being unnecessary – could cause more issues with the home.

To make sure you don’t get caught in this reverse mortgage scam, always use a licensed contractor who has good reviews.

If you’re thinking of using some of the equity in your home to make home improvements, consider a cash-out refinance from a reputable lender.

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Key Reverse Mortgage Scam Red Flags

While the scams may be different, many tend to use similar tactics to confuse potential victims. When considering a reverse mortgage, watch for these red flags:

  • The business uses terms that are difficult to understand and explains them poorly.
  • The offer seems “too good to be true.”
  • The lender uses high-pressure sales tactics.
  • You’re getting unsolicited advertisements, emails and phone calls.
  • You’re getting voice-recorded phone calls with generic messages.
  • The business tells you not to contact your current lender or speak with a real estate attorney or financial adviser.
  • The business wants to charge you fees for obtaining information on a reverse mortgage.

You should never pay for reverse mortgage information. Many free reverse mortgage resources are offered online. These include the Department of Housing and Urban Development (HUD), which provides free reverse mortgage information.

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How To Avoid Reverse Mortgage Scams

Knowing the common reverse mortgage scams targeting seniors and their red flags is a good way to protect yourself from getting conned. Still, you can use these additional tips to play it safe.

  • Talk with trusted experts, including your financial adviser or real estate attorney.
  • Talk with trusted family members who can help you learn more about the loan and the lender you’re working with.
  • Before signing any documents, make sure you fully understand your loan. Ask questions about anything you don’t understand and have a trusted loved one or attorney review the documents.
  • Research your reverse mortgage lender to make sure they’re a reputable company. Visit your lender’s website and social media pages, check their standing with the Better Business Bureau (BBB) and read reviews from past clients.
  • Ignore any unsolicited advertisements, phone calls and emails.
  • Sign up for reverse mortgage counseling even if it’s not required.
  • If you think someone is trying to scam you, report the fraud to HUD’s Office of Inspector General hotline at (800) 347-3735.

A Reverse Mortgage Alternative

If you’re thinking about getting a reverse mortgage, consider a home equity conversion mortgage (HECM) instead. An HECM is insured by the government, is only provided by FHA-approved lenders and has additional guidelines to protect borrowers. These protections can make an HECM an attractive alternative and help you avoid reverse mortgage loan scams.

The Bottom Line: Trusted Advice Is The Best Scam Protection

Reverse mortgage scams are intended to steal a homeowner’s equity, leaving them with little still in the home and potentially putting them in danger of losing the property.

Since reverse mortgages are complex loans, they’re the perfect product for potential scams. If you’re considering a reverse mortgage, take some time to educate yourself on the loan product and reputable lenders.

And, if you need additional help, you can always discuss potential offers with a licensed licensed Home Loan Expert who can help you with all of your home lending needs.

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Victoria Araj

Victoria Araj is a Section Editor for Rocket Mortgage and held roles in mortgage banking, public relations and more in her 15+ years with the company. She holds a bachelor’s degree in journalism with an emphasis in political science from Michigan State University, and a master’s degree in public administration from the University of Michigan.