Senior couple reviewing finances after reverse mortgage scam.

How To Recognize A Reverse Mortgage Scam

Lauren Nowacki6-minute read

May 16, 2023


Reverse mortgages are loans that allow homeowners who are 62 and older to borrow against the equity in their home. Their purpose is to provide additional financial support and help seniors in retirement. But not everyone has a senior’s best interest in mind, and many scammers use this type of loan to con older Americans out of their hard-earned money and equity and, in some cases, their homes.

Wondering how you can protect yourself or a loved one from scammers? The first step is learning about some of the most common reverse mortgage scams and how to identify them. The next step would be working with a trusted lender that offers these types of loans. At this time Rocket Mortgage® does not offer reverse mortgages, but we can help you learn more about them and the red flags to watch out for to avoid falling victim to related scams.

Common Reverse Mortgage Scams

New real estate and financial services scams pop up seemingly every day. And while scammers may be getting more creative, there are still many common reverse mortgage scams they use. Here are some of the more popular ones you should know.

Foreclosure Scams

These scams target seniors in trouble of losing their homes to foreclosure, with scammers promising relief using a reverse mortgage. While a reverse mortgage does pay off an existing mortgage, it comes with high closing costs and other fees and 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 because they aren’t able to make payments, 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, you should consider alternatives like loan modification, which may allow you to extend your loan term or lower your interest rate without having to refinance. This can lower your monthly payment to a more manageable amount.

Equity Theft Scams

Equity theft scams involve several different parties, including unscrupulous appraisers, attorneys and loan officers, who work together to inflate an appraisal on a home, making 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 high equity. They handle all of the documents, close the loan and then take the loan proceeds, leaving the borrower with little to no equity and with little to no cash after paying closing costs and other fees.

House Flipping Scams

House flipping scams are used by scammers who convince senior homeowners to get a reverse mortgage on their existing home, then use the proceeds to buy another property. This other property is usually purchased on the cheap 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 the proceeds in their pocket that the new homeowner realizes the house is in complete disrepair.

Fraud By Relatives Or Financial Planners

This type of reverse mortgage scam involves a crooked financial planner or advisor talking you into getting a reverse mortgage when you don’t need one. They may tell you to let them handle your proceeds to invest them for you, but then use the money 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 VA does not currently offer any reverse mortgage loans and there are currently no reverse mortgages specifically for veterans. If someone is trying to sell you a reverse mortgage specifically for veterans or one that is offered by the VA, it is a scam.

If you are 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 a 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. This type of reverse mortgage scam often involves a contractor approaching the homeowner, unsolicited, claiming that they noticed something wrong with the home and then strong-arming them into getting the repairs. These people are often unlicensed and provide an estimate that is much higher than the actual cost. The repairs pitched by these contractors are often unnecessary and could potentially cause more issues if the contractor does shoddy work. The contractor often tells homeowners that the reverse mortgage is free money they can use to pay for the work. However, it’s important to know that a reverse mortgage is not free money. These loans come with several fees and closing costs.

If you’re considering using some of the equity in your home to make home improvements, consider a cash-out refinance from a reputable lender. And always use a licensed contractor with good reviews.

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Key Reverse Mortgage Scam Red Flags

While the scams may be different, many of them tend to use the same 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 to a real estate attorney or financial advisor.
  • The business wants to charge you fees for obtaining information on a reverse mortgage.

You should never pay for this information. Along with the many free reverse mortgage resources offered online, the Department of Housing and Urban Development (HUD) also provides free reverse mortgage information on its website.

How To Avoid Reverse Mortgage Scams

Knowing the common reverse mortgage scams and their red flags is a good way to protect yourself from getting conned. However, there are additional ways to play it safe.

  • Talk to trusted experts, including your financial advisor and real estate attorney.
  • Talk to trusted family members and ask for their help in learning more about the loan and the lender you’re working with.
  • Make sure you understand everything before signing anything. Be sure to ask questions about anything you do not understand and have a trusted loved one or attorney review the documents before you sign them.
  • 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 you are not required to take it.
  • If you think someone is trying to scam you, call HUD’s Office of Inspector General hotline at (800) 347-3735 to report it.

If you’re thinking about getting a reverse mortgage, consider getting a home equity conversion mortgage (HECM), which is insured by the government, is only provided by FHA-approved lenders and has additional guidelines put in place to protect borrowers.

The Bottom Line: Trusted Advice Is The Best Scam Protection

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

Reverse mortgages are complex loans, making them the perfect product for a scam. It’s imperative that homeowners educate learn everything they can about the loan product and the lender offering the product. One of the best ways to protect yourself or a loved one is communication. Talk about any potential offers with a trusted family member, licensed Home Loan Expert, financial advisor or real estate attorney. They may be able to help you better understand this complex loan offer up alternative options and help you determine what’s the best option for your financial goals.

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Lauren Nowacki

Lauren is a Content Editor specializing in personal finance and the mortgage industry. Her writing focuses on reporting the best places to live in the U.S. based on certain interests and lifestyles. She has a B.A. in Communications from Alma College and has worked as a writer and editor for various publications in Philadelphia, Chicago and Metro Detroit.