How to recognize a reverse mortgage scam

Contributed by Tom McLean

Jul 7, 2025

4-minute read

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

A reverse mortgage allows older homeowners to convert their equity into cash. Instead of making payments and reducing the amount you owe, you receive payments and the amount you owe grows. The purpose of a reverse mortgage or home equity conversion mortgage is to help seniors afford to continue living in their own homes.

But a reverse mortgage is a complicated financial product and thieves use that complexity to defraud older Americans of their hard-earned money, their equity and even their homes.
Rocket Mortgage® doesn’t offer reverse mortgages, but we can help you learn how to protect yourself or a loved one from reverse mortgage scams.

6 common reverse mortgage scams

Here are a few of the most common reverse mortgage loan scams.

1. Foreclosure scams

Scammers approach seniors who are behind on their home loan payments and persuade them to take out a reverse mortgage to avoid foreclosure. You pay the scammer excessive fees and closing costs to get the reverse mortgage. The scammer also may steal the cash you borrow against your equity.

That can leave you responsible for paying property taxes, homeowners insurance and maintenance costs without the income from the reverse mortgage. You could end up back in a situation where you’re unable to pay your expenses and may face a reverse mortgage foreclosure.

If you need assistance making mortgage payments, reach out to your servicer and ask about your options. While it may damage your credit, you may be eligible for a loan modification, which allows you to extend your loan term or lower your interest rate without refinancing.

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2. Equity theft scams

Equity theft scams usually involve unscrupulous appraisers, attorneys, and loan officers working together to inflate an appraisal on a home. This makes it appear like the homeowner has more equity than they really have. The homeowner gets a reverse mortgage to borrow this phantom equity and the scammers steal the proceeds when the loan closes. The borrower pays closing costs and fees and is left with little to no equity or cash.

3. House flipping scams

A house flipping scam is when scammers convince a homeowner to invest in a property using the proceeds from a reverse mortgage. The scammers buy a cheap property, make superficial repairs, and present it to you as a smart investment. It’s only after the deal is closed and the scammers have pocketed their profits that the new homeowner realizes the house they’ve bought hasn’t been repaired enough to be a valuable investment and they’ll have to put more money into or likely lose money when it’s sold.

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4. Fraud by relatives or financial planners

This type of reverse mortgage scam involves a financial planner or adviser talking seniors into getting an unnecessary reverse mortgage. They’ll likely handle the loan process on their own and ultimately pocket the proceeds themselves.

This also can happen with relatives. A loved one may convince you to get a reverse mortgage and give them the proceeds. Or they may coerce you into granting them power of attorney, which allows them to make financial decisions for you, including getting a reverse mortgage and using the loan proceeds for themselves.

5. Veteran reverse mortgage scams

Veterans Affairs does not offer reverse mortgage loans. If someone is trying to sell you a reverse mortgage specifically for veterans or one that’s offered or approved 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 and make monthly payments more manageable.

6. Fraud by contractors

Be cautious of contractors who recommend you take out a reverse mortgage to pay for home repairs. This scam along goes something like this:

  1. A contractor approaches a homeowner unsolicited, claiming they noticed serious problems with their home.
  2. The contractor scares the senior, claiming the home may be unsafe to live in without repairs.
  3. The contractor provides an estimate that’s much higher than the actual cost.
  4. The contractor convinces the homeowner to take out an unnecessary reverse mortgage to pay for the repairs and may or may not complete the work.

Most contractors who suggest a reverse mortgage are unlicensed, and their repairs – along with being unnecessary – could create more problems than they solve. Always use a reputable, licensed contractor.

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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Reverse mortgage scam red flags

When considering a reverse mortgage, watch for these red flags:

  • A lender or contractor uses jargon or complex 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

How to avoid reverse mortgage scams

Here are some additional tips for avoiding reverse mortgage scams.

  • Ask an attorney or lender for accurate information on reverse mortgages.
  • Talk with people you trust, such as your financial adviser or family members who have your best interests at heart, to explain reverse mortgages and review any proposals for getting one.
  • Before signing any documents, make sure you fully understand them. Ask questions about anything you don’t understand and have someone you trust or an attorney review the documents for you.
  • Research any lender who approaches to make sure they’re reputable. Visit the lender’s website and social media pages, check their standing with the Better Business Bureau, and read reviews from past clients.
  • Ignore 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 it to the Office of Inspector General at the U.S. Department of Housing and Urban Development by calling its hotline at (800) 347-3735.

The bottom line: Understanding reverse mortgages protects against scams

Since reverse mortgages are complex, they’re fertile ground for potential scams. Reverse mortgage scams deplete a homeowner’s equity and leaves them without cash, potentially putting them in danger of losing their home to foreclosure. If you’re considering a reverse mortgage, educate yourself about how they work and make sure to find a reputable lender.

If you need additional help, you can always discuss your borrowing options with a licensed Home Loan Expert at Rocket Mortgage.

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Dan Miller

Dan Miller is a freelance writer and founder of PointsWithACrew.com, a site that helps families to travel for free/cheap. His home base is in Cincinnati, but he tries to travel the world as much as possible with his wife and 6 kids.