How to Avoid Reverse Mortgage Scams

Are you considering a reverse mortgage but worried about falling victim to a scam? You’re not alone. Reverse mortgage scams are a growing concern for many older homeowners looking to access their home equity. 

While not all reverse mortgage offers are fraudulent, it pays to be aware of the potential risks and red flags. By recognizing the warning signs and taking steps to protect yourself, you can safely explore reverse mortgages without fear of becoming a victim.

What are reverse mortgage scams?

Reverse mortgage scams are fraudulent schemes that target older homeowners, typically those 62 years and older, who have built up ample home equity. 

Many seniors are already leery of reverse mortgages because they’re complicated financial products. Unfortunately, many scammers know this and will manipulate you into thinking reverse mortgages are even more complicated than they are to trick you into trusting the scammer. 

Scammers often target reverse mortgage applicants because they see them as vulnerable and potentially easy to exploit. They use high-pressure sales tactics, false promises, and misleading information to convince seniors to take out reverse mortgages they don’t need or can’t afford.

Here are some common types of reverse mortgage scams:

Reverse mortgage scam	What is it?
Foreclosure scams	Scammers promise to stop foreclosure with a reverse mortgage, but the loan may lead to a new foreclosure.
Equity theft scams	Dishonest professionals inflate your home’s value, take reverse mortgage proceeds, and leave you with little equity.
House flipping scams	Scammers convince you to buy and flip a house using reverse mortgage funds, but the property is often a lemon.
Fraud by people you trust	Financial professionals, relatives, or caregivers pressure you into unneeded reverse mortgages and misuse funds.
Unnecessary refinancing	Lenders push you to refinance reverse mortgages, collecting high fees while leaving you worse off.
Contractor fraud	Unlicensed contractors claim a home needs costly repairs and convince you to pay with a reverse mortgage.
Veteran or VA scams	Reverse mortgage lenders may promise special reverse mortgage deals for veterans

Foreclosure scams 

Scammers might say: “Get a reverse mortgage to stop foreclosure!”

If you’re struggling to keep up with mortgage payments, watch out for scammers who claim a reverse mortgage will stop the foreclosure process. While a reverse mortgage can pay off your existing loan, it comes with high closing costs and fees. 

You’re still responsible for property taxes, insurance, and maintenance with a reverse mortgage, which can be a heavy financial burden for some seniors. If you can’t keep up, you may face foreclosure on the new reverse mortgage.

Equity theft scams

Scammers might say: “Unlock your home’s true value with a reverse mortgage!”

Equity theft involves a group of dishonest professionals, such as appraisers, attorneys, and loan officers, working together to deceive homeowners. They inflate your home’s appraised value, making you believe you have more equity than you do. 

The scammers then persuade you to take out a reverse mortgage. After closing costs and fees, you’re left with little to no equity or cash while the scammers walk away with the loan proceeds.

House flipping scams

Scammers might say: “Double your money by investing in real estate with a reverse mortgage!”

Don’t fall for fraudsters who encourage you to use reverse mortgage funds to buy a second property, renovate it, and quickly resell it for a profit. The house may be in poor condition, and the scammer will disappear with your money. 

Unethical realtors and loan officers may also be involved, pushing the deal to generate commissions for themselves.

Fraud by people you trust

Scammers might say: “Let me handle your reverse mortgage for you!”

This type of scam involves someone you trust—like a financial professional, relative, friend, or caregiver—pressuring you to get a reverse mortgage you don’t need. They may offer to manage the loan proceeds or invest them on your behalf, only to use the money for their benefit instead. 

Sometimes, the person you trust may try to convince you to give them Power of Attorney so they have full access to your money. 

Unnecessary refinancing

Scammers might say: “Lower your interest rate by refinancing your reverse mortgage!”

Be leery of lenders who try to persuade you that refinancing into a new loan is a wise financial move. While refinancing your home equity conversion mortgage (HECM) can be a legitimate way to lower your interest rate or access more funds, it’s not always the best decision. 

Reverse mortgage refinancing often involves hefty costs and fees that can leave you worse off while the lender profits. So before you refinance, carefully evaluate if it makes sense for you. Speak to a trusted financial advisor or a HUD-approved reverse mortgage counselor first.

Contractor fraud

Scammers might say: “Use a reverse mortgage to pay for these critical home repairs!”

Be cautious of unsolicited offers from contractors who claim they noticed a problem with your home that needs repair. They may provide inflated estimates and convince you to pay for the work with a reverse mortgage, falsely describing it as “free money.” 

In reality, reverse mortgages come with costs and fees, and the contractor’s work may be subpar or incomplete.

Veteran or VA scams

Scammers might say: “Act now! We have special veteran deals on reverse mortgages!”

Reverse mortgages are offered only through the Department of Housing and Urban Development and private lenders. The Office of Veteran Affairs (VA) does not offer reverse mortgage loans. 

But with this scam, lenders may try to convince you that your VA status can lead to special deals, no down payments, or easier qualifications. 

Phone, email, text, mail—these are all ways scammers might contact you.

Erin Kinkade

CFP®

Reverse mortgage scam red flags

Familiarize yourself with these warning signs so you know what to look for with reverse mortgage scams:

• You get unsolicited offers for reverse mortgages by phone, email, or visits to your home.
• You’re pressured to act now to take advantage of limited-time offers or exclusive deals.
• You’re told a reverse mortgage is “free money” or a form of government benefits.
• You’re told you can’t lose your home or that a reverse mortgage is risk-free. 
• You’re pressured to sign loan documents immediately. 
• The contract terms and loan process seem vague or confusing. 
• You’re discouraged from discussing the loan with your family or advisors. 
• You’re encouraged to falsify information or lie to the lender about the loan’s purpose. 
• You’re pushed into using your reverse mortgage funds to buy other financial products, like investments or annuities. 
• You’re pressured into using a specific HUD-approved counselor, or you’re told you don’t need counseling at all. 
• You find out you’re working with unregistered or unlicensed professionals. 

Tip

You have the right to cancel a reverse mortgage for any reason within three business days after closing. Don’t be afraid to exercise this right if you have second thoughts about your loan or suspect it may be a scam. 

Ask the expert

Erin Kinkade

CFP®

To ensure professionals you’re working with are legitimate: Check the Better Business Bureau website to ensure it is accredited. Contact the United States Department of Housing and Urban Development’s Office of Inspector General hotline at (800) 347-3735 to see if it can confirm if this is a scam or not. Ask the company for referrals or references to those it has served. Ask the company for its documents and read the fine print. Engage a financial professional or counselor to assist you in the search for a reputable company.

How to avoid reverse mortgage scams

The Consumer Financial Protection Bureau (CFPB) gives these tips to protect yourself from reverse mortgage scams: 

• Don’t listen to any contractor who pushes you to get a reverse mortgage to pay for home repairs or improvements. 
• Avoid using reverse mortgage funds to buy annuities or make investments. Remember that reverse mortgage loan officers can’t legally sell you investments or other financial products. 
• Shop around and compare offers from multiple lenders. Be wary of any lender claiming to be your only option—this could be a scam.
• Before deciding on a reverse mortgage, consult with a HUD-approved reverse mortgage counselor. They can help you understand if it’s the right choice for your situation.
• Never sign any documents you don’t fully understand. Have a trusted advisor or attorney review the terms before committing.
• Be cautious of unsolicited offers and high-pressure sales tactics. Legitimate lenders won’t push you to make a hasty decision.

Remember, if an offer seems suspicious or too good to be true, it probably is. Trust your instincts and talk to a HUD-approved counselor or legal professional before deciding on a reverse mortgage.

What to do if you suspect a reverse mortgage scam

Finding out you or a loved one is a victim of a reverse mortgage scam can feel like a punch to the gut. Follow these steps to protect yourself and minimize potential damage: 

First and foremost, cut off all communication with the suspected scammer. Do not engage with them further, as this may only complicate matters and endanger you.

Next, explain your situation to your mortgage lender or HUD-approved housing counselor. They can help verify if it’s a scam and guide you on what to do. 

Lastly, report the suspected fraud to stop others from being scammed too. The Federal Trade Commission (FTC) says to report the scam online at ReportFraud.ftc.gov and your state Attorney General’s office. Give them as many details and scam-related evidence as you can. 

Tip

⚠️ Warning: Don’t confront the scammer yourself, as it may put you at risk and is unlikely to resolve the issue. Instead, focus on working with legitimate agencies like the FTC and your state attorney general to report the scam, protect your assets, and prevent others from falling victim to similar fraudulent activities.