7 Reverse Mortgage Scams to Watch Out For

When considering a reverse mortgage, it’s essential to understand how to protect yourself from potential scams. This guide will help you spot common red flags, including high-pressure tactics and unsolicited offers, and explain how to choose a reputable reverse mortgage company. 

Whether you’re exploring reverse mortgages for yourself or researching for a loved one, we’ll break down the scams in simple terms so you can make an informed decision. Our goal is to give you the tools to avoid fraud and feel confident in finding the right reverse mortgage for your needs.

Are reverse mortgages scams?

No, not all reverse mortgages are scams. Many safe and legitimate reverse mortgage programs and providers exist, including a government-guaranteed option from FHA-approved lenders. Even so, it’s essential to be mindful of the potential for fraud and avoid predatory lending schemes. 

The nature of reverse mortgages can make the borrowers susceptible to fraud and scams. You usually must be at least age 62 to get one. While many older people are in prime health and capable of avoiding scams, others may have health or financial issues, making them vulnerable to elder abuse. 

Elder abuse can take many forms, but one of the ways older adults can fall prey to fraudsters is through financial abuse. This could include having a fraudster coerce or trick the elderly person into taking out a reverse mortgage, with the goal being to steal the loan proceeds or home.

Anyone with aging loved ones should be on the lookout for elder abuse. It can take many forms, and those who perpetrate the abuse might even be friends, family members, or caregivers. By being mindful, you can help avoid reverse mortgage scams and other forms of financial abuse or fraud. 

The truth about reverse mortgages

Not all reverse mortgages are scams, but caution is still necessary. Even with a legitimate provider, it’s important to evaluate whether a reverse mortgage suits your needs and seek advice from a reputable financial professional if needed.

7 reverse mortgage scams to watch for 

Reverse mortgages can be helpful for some homeowners, but they also attract fraudsters looking to exploit vulnerable individuals. Awareness of common scams is the first step in protecting yourself or a loved one. 

Here are seven reverse mortgage scams to watch for and how to avoid them.

1. Reverse mortgage fraud

One way reverse mortgage fraud happens is by a scammer posing as a lender. They’ll try to convince you that you’re working with an actual lender and get you to sign legal contracts. You may be rushed to sign the documents without thoroughly reading them and encouraged not to shop around. 

Any time you’re asked or pressured to make a quick decision, not shop around, or sign without having time to review the paperwork, you should question whether the person is looking out for your best interests. 

You can avoid this type of fraud by doing independent research and taking as much time as necessary to get comfortable with the documents. Don’t let a false sense of urgency sway you to act quickly and, if needed, ask a financial expert for advice. 

Our expert’s advice if you think you’re being scammed

Erin Kinkade

CFP®

It is important to remain calm and not engage any further with the purported scammer. Make sure to document everything, and contact your actual lender to let it know what happened. If it is, in fact, a scam, report it to the FTC, your state Attorney General’s office, and the Consumer Financial Protection Bureau. If it’s severe enough—you actually lost or sent funds—contact your local law enforcement.

2. Reverse mortgage home improvement or repair scams

Another type of scam is when the homeowner is pressured to get a reverse mortgage to pay for high-cost home improvements or repairs. Recently, a reverse mortgage professional in Canada helped law enforcement identify and arrest a suspect thought to have perpetrated this type of crime. 

Fraudsters are inventive, and there are many ways this could happen. One way is for the scammer to get the homeowner to sign a contract for unnecessary home improvements or repairs requiring monthly payments and resulting in a lien being placed on the home. 

They might later convince the homeowner to take out a reverse mortgage to repay the debt, using the home’s equity to cover the unnecessary expenses. This leaves the homeowner with less financial security and more debt. Even worse, they might lose their home.

To protect yourself, always seek a second opinion before agreeing to extensive repairs, and avoid signing contracts without thoroughly researching the company and consulting a trusted financial or legal professional.

3. Reverse mortgage appraisal problems

Although they may not result from a scam, appraisal problems can cause issues for those who get reverse mortgages. For instance, an inflated appraisal could result in the homeowner borrowing more money than their home is worth, as happened to a senior in the Philadelphia area. 

While your heirs won’t need to repay more than the home is worth, it can cause a problem if you want to sell the home before you pass away. If your home isn’t worth as much as you owe, you may be unable to sell it for enough money to repay the reverse mortgage. 

The lender is responsible for ordering the appraisal, but review it carefully and ask questions if anything seems off. You can also get a second opinion from a trusted real estate or financial professional to ensure the home’s value is accurate and the loan aligns with your financial plans.

4. Reverse mortgage backwards application schemes

With a backward application scheme, the homeowner is convinced to include false information on their mortgage application so it will be approved. The loan is then approved based on false information rather than the homeowner’s actual financial situation. 

While a reverse mortgage does not require monthly payments, the homeowner must keep the home in good repair and pay their taxes and insurance. If the homeowner can’t afford to maintain the home or pay these routine costs, they risk losing their home to foreclosure.

Always provide accurate information on your reverse mortgage application to avoid a backward application scheme. Misrepresenting your financial situation may lead to approval but can also result in future costs you can’t manage. 

5. Reverse mortgage investment scams

With this scam, the fraudster tempts the homeowner to use the reverse mortgage proceeds to get involved with an “act now” investment. Hearing that it’s a once-in-a-lifetime opportunity and you must act now to benefit from it is a red flag for investment fraud. 

Fraudsters create a false sense of urgency and try to get you to act without allowing time to consider the details or implications. You can avoid falling victim to this time of fraud by always taking the time to make a well-thought-out decision. 

If you’re unsure whether an investment is legitimate, consult a reputable and licensed financial professional or adviser who is not associated with this transaction. 

6. Reverse mortgage TV or radio scam

In a TV or radio scam, fraudsters find their potential victims by running a fake advertisement for an actual product, such as a reverse mortgage, through the television or radio. The scammers will do their best to make the reverse mortgage offer sound enticing. 

When you contact them about the reverse mortgage offer you heard advertised, the fraudster may try to get you to give them personal information so they can steal your identity. They might also require you to pay the fee, which won’t go anywhere but into the criminal’s pocket. 

You can avoid these scams by researching any financial product before responding to an advertisement. Do your homework to see whether it’s legitimate by reading reviews, checking with trusted financial professionals, and confirming that the company is licensed and reputable. 

Be cautious of any offer that pressures you to take immediate action or requests sensitive information upfront.

7. Reverse mortgage elder abuse

While our hope should be that we’re well-cared for by our loved ones or caregivers when we’re elderly, that’s not always the case. Elder abuse is a serious concern, and one way it can occur is through a reverse mortgage scam carried out by someone with a close relationship with an elderly person. 

In this type of scam, a loved one, caregiver, or even a stranger convinces the elderly person to take out an unnecessary reverse mortgage. They persuade the homeowner to let them manage the loan proceeds and use the money for their own benefit, such as in a recent California case. 

The victim may not realize they’re being exploited, so it’s crucial for someone external to detect the signs. Look for sudden financial changes, altered legal documents, isolation, or a caregiver exerting control over the elderly person’s finances. 

Regular check-ins and involving a trusted financial professional can help prevent or uncover potential abuse before it escalates. We should all be aware of the potential for elder abuse and look for red flags. 

How to identify the dangers of a reverse mortgage 

When considering a reverse mortgage, it’s important to recognize common red flags that could indicate a scam. Fraudsters often create urgency, exert undue influence, or use unsolicited ads to take advantage of homeowners. 

You can protect yourself from falling victim to reverse mortgage scams by staying vigilant. Here are red flags to watch for when considering a reverse mortgage:

1. Pressure to act quickly: Scammers often create urgency to push you into making a decision without fully reviewing the details or being given time to shop around. 
2. Undue influence or control: Be cautious if a caregiver, loved one, or anyone pressures you into taking out a reverse mortgage you don’t need or managing your funds.
3. Unsolicited ads or offers: Avoid reverse mortgage offers from TV, radio, or phone calls asking for personal information or upfront fees.

Staying aware of these red flags and warning signs can help protect you from the dangers of reverse mortgage scams.

Read More

Reverse Mortgage Pros and Cons

5 tips to avoid reverse mortgage scams

Avoiding reverse mortgage scams requires staying informed and cautious throughout the process. Here are our most important tips to help protect yourself or a loved one from fraud:

1. Research the lender: Always verify the company’s credentials, read reviews, and confirm that it is licensed before proceeding with any reverse mortgage offer.
2. Avoid rushed decisions: Scammers often create a false sense of urgency. Take your time to review documents, and never feel pressured to act quickly.
3. Consult a financial professional: Before agreeing to a reverse mortgage, speak with a trusted financial expert to ensure it’s the right option for you and that all terms are clear.
4. Guard your personal information: Be cautious about sharing sensitive information, especially with unsolicited offers.
5. Watch for signs of elder abuse: If a loved one is involved, look for red flags, including sudden financial changes or control over their finances. 

These tips can help you make informed and safe decisions about reverse mortgages.

I would recommend contacting an expert who is certified and reputable (a HUD-approved housing counselor) to help with guidance on making an informed and reliable decision. This certified person may also be a CFP®, but it’s not a requirement!

Erin Kinkade

CFP®

Read More

How to Get Out of a Reverse Mortgage

How to find reputable reverse mortgage companies

Choosing a reputable reverse mortgage company is vital to avoiding scams. Below, we’ve highlighted several companies we recommend based on our thorough evaluation process.

We use a detailed rating process that looks at multiple factors, including company transparency, customer reviews, application process, and more. After analyzing a wide range of data, we identify the best companies for different needs.

Visit our best reverse mortgages list to learn more about how we rate these companies and to explore additional options. 

FAQ

What are the worst reverse mortgage companies?

While evaluating each lender individually is essential, some reverse mortgage companies may have a history of customer complaints, poor customer service, or legal troubles. 

When identifying subpar companies, look for issues like hidden fees, pushy sales tactics, or unfavorable loan terms. Reading online reviews, checking their Better Business Bureau (BBB) rating, and consulting professional reviews can help. It’s important to consider the number of reviews when interpreting ratings. Research each company to avoid negative experiences.

We’re confident in our list of the best reverse mortgage companies and urge all readers who are confident a reverse mortgage is right for them to start there.

Is a reverse mortgage a ripoff?

No, a reverse mortgage is not inherently a ripoff, but depending on the terms and how it’s used, it can be problematic for some borrowers. High fees, interest rates, and the reduction in home equity may make it seem unfavorable if borrowers don’t fully understand the long-term costs. 

Reverse mortgages can provide financial relief for seniors, but they aren’t suitable for everyone, especially those who want to leave their home to heirs or might not be able to maintain the property and pay taxes.

Are reverse mortgages predatory?

Reverse mortgages are not predatory by default, but as we detailed above, in several instances, unscrupulous lenders or sales agents use aggressive tactics to target vulnerable seniors. Predatory practices may include pressuring borrowers into taking loans they don’t need, hiding fees, or misrepresenting the product. It is crucial to work with reputable lenders and carefully review all terms before committing. Speaking with a HUD-approved housing counselor can provide additional guidance.

What should I know about the AAG reverse mortgage lawsuit?

The lawsuit against AAG (American Advisors Group) stemmed from allegations of misleading advertising and improper practices. AAG was accused of using deceptive marketing strategies, falsely implying that reverse mortgages were risk-free and would allow seniors to stay in their homes with no obligations. 

The lawsuit highlighted the importance of understanding the responsibilities of a reverse mortgage, such as paying property taxes and insurance, which, if neglected, could lead to foreclosure. Prospective borrowers should review AAG’s terms and ensure they know all loan requirements.

What should I do if I encounter a reverse mortgage scam?

If you suspect a reverse mortgage scam, it’s important to stop communication with the scammer immediately and avoid signing any documents or providing personal financial information. 

Document all interactions, including emails or phone conversations, and report the scam to authorities. Scammers often prey on seniors with misleading claims, so be cautious of offers that seem too good to be true.

How do I report reverse mortgage scams?

To report a reverse mortgage scam, contact the Consumer Financial Protection Bureau (CFPB) online or by phone, or report fraud on the Federal Trade Commission (FTC) website. You can also notify your State Attorney General’s Office or the HUD Office of Inspector General (OIG) if the scam involves an FHA-insured loan.

How can I check the legitimacy of a reverse mortgage company?

Verify the company’s licensing in your state and check whether it’s listed as an approved lender with HUD. Review its ratings and complaints with the Better Business Bureau (BBB), read independent reviews, and consult a HUD-approved housing counselor to ensure the company is reputable.