Reverse mortgage scams: How to spot and avoid them

Reverse mortgages work  the opposite way a regular mortgage does. For a traditional mortgage, you make monthly payments to pay off a loan. With a reverse mortgage, the lender pays you. You can receive the money in several ways, such as monthly payments, a lump sum payment, or a line of credit.

The loan becomes due when the homeowner moves out of the property, sells the home, or passes away. The balance (including accrued interest and fees) is typically repaid from the proceeds of the home’s sale. Homeowners remain responsible for property taxes, maintenance, and homeowners insurance throughout the life of the loan.

Is a reverse mortgage a scam?

A reverse mortgage isn’t a scam. It’s classified as a higher-risk product, but it’s a legal, regulated financial product designed to help seniors access home equity. With a reputable lender and government backing, a reverse mortgage can be a reliable way for senior citizens to enjoy supplementary retirement income, cover living expenses, and pay for healthcare or emergencies.

Despite being legitimate, many people may think that a reverse mortgage is a scam because fraudsters often use the idea of “easy cash from your home” to trick seniors. Scammers specifically target older adults because they often own valuable homes, may be less familiar with modern technology and online scams, and tend to trust financial representatives or persuasive salespeople. These factors make seniors attractive targets for reverse mortgage fraud.

6 common reverse mortgage scams to watch out for

Scammers use various schemes to carry out reverse mortgage fraud. Here are six common reverse mortgage scams to watch out for.

Foreclosure rescue scams

In a foreclosure rescue scam, fraudsters promise to “save” a senior’s home from foreclosure through a reverse mortgage. The scammer may charge excessive or fake fees upfront and in some cases, divert the loan proceeds. Some even attempt to take the deed of the house. Typically, these scammers will find and target older homeowners who are struggling with their mortgage payments, posing as a reputable lender.

Equity theft scams

Equity theft scams trick seniors into signing over home ownership or equity under false pretenses. It usually involves appraisers, attorneys, and loan officers inflating the home’s value, making it appear that the homeowner has more equity than they do. The scammer then extracts funds, leaving the senior with debt and little to no real equity.

Contractor and home repair scams

In contractor and home repair scams, fraudsters target seniors by claiming that “crucial” or necessary home repairs must be completed and can be paid for through a reverse mortgage. These scammers often overcharge, do shoddy work, and disappear with the money. In almost all cases, any home improvements that they pitch to the homeowner are unnecessary or vastly overpriced.

Financial advisor fraud

Some scammers will pose as trusted financial advisors and convince seniors to take out reverse mortgages to buy annuities, insurance policies, or other investment products. While these products are presented as beneficial for the homeowner, the scammer’s primary goal is to pocket the funds for themselves rather than provide any real financial benefit. 

Family member exploitation

Relatives may pressure or deceive seniors into taking out a reverse mortgage for their own financial gain, often without the senior fully understanding the ramifications. Some may even coerce seniors into giving them power of attorney to control proceeds.

Veteran reverse mortgage scams

In veteran reverse mortgage scams, fraudsters target retired veterans by claiming that the Department of Veterans Affairs (VA) offers special reverse mortgage programs or benefits. They may charge upfront fees or encourage seniors to apply for these “exclusive” VA-backed loans. In reality, the VA does not offer reverse mortgage products, so any fees collected go directly to the scammer.

Reverse mortgage scam risks

Falling victim to a reverse mortgage can have serious and long-lasting consequences, often affecting a senior’s finances. Scammers use sophisticated tactics to exploit older homeowners, and recovery from these types of fraud can be extremely difficult. 

The main risks of reverse mortgage scams include:

• Financial loss. Scammers can steal cash, home equity, or reverse mortgage proceeds, leaving seniors without the funds they planned to use for living expenses.
• Identity theft. Fraudsters may collect personal information, such as Social Security numbers, bank account details, and other sensitive data, which can be used to open accounts, take out loans, or commit other forms of fraud in the senior’s name.
• Loss of home or property rights. Seniors can be tricked into signing over the deed, granting power of attorney, or giving control of their home to a fraudster.

Red flags of reverse mortgage scams

Reverse mortgage scams often succeed by taking advantage of a senior’s limited familiarity with complex financial products or pretending to be a legitimate lender. Other common red flags include:

1. Increased pressure to act quickly, often using language like “Sign today or lose this deal!” to create a false sense of urgency and convince seniors to act before thinking.
2. Requests for upfront fees or large payments before any loan is processed.
3. Unsolicited offers (calls, emails, or in-person visits) for reverse mortgages.
4. Claims of guaranteed cash or benefits, usually promising “free money” or “guaranteed income.”
5. Requests for personal information too early in the process, like asking for a Social Security number, bank account details, or credit information.
6. Unlicensed or unknown lenders with no verifiable company or government affiliation.
7. Complex or confusing documents, often accompanied by encouragement to sign without explanation.
8. Pressure to involve family or friends unnecessarily, claiming they must co-sign or approve.

How to protect yourself from reverse mortgage scams

Taking a closer look at a lender’s behavior or the terms of the loan being offered are some of the best ways to avoid reverse mortgage scams. However, you should also follow these safety tips:

1. Verify the lender’s credentials. Confirm that the lender or company is properly licensed and has a legitimate track record. Check regulatory databases and official websites before proceeding with any reverse mortgage offer.
2. Get independent counseling. Consult reverse mortgage counselors approved by the US Department of Housing and Urban Development (HUD).
3. Avoid rush decisions. Be cautious of anyone who pressures you to act quickly. Real lenders will give you time, so you can review documents, ask questions, and consider your options carefully.
4. Don’t pay upfront fees. Legitimate reverse mortgages don’t require large payments in advance.
5. Review all documents carefully. Understand all terms, costs, and obligations. If anything seems unclear, request clarification before signing.
6. Protect your personal information. Avoid sharing sensitive details, such as your Social Security number, bank account information, or identification documents, with strangers.
7. Consult trusted advisors. Talk about major financial decisions with family members, an attorney, or a financial advisor you trust.
8. Beware of unsolicited offers. Be skeptical of phone calls, emails, or door-to-door offers promoting reverse mortgages.
9. Educate yourself on scam protection. Keep up to date with popular or trending scam tactics that may target older homeowners.

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How to report reverse mortgage scams

If you or someone you know has been targeted by or has become a victim of a reverse mortgage scam, you should contact the appropriate authorities and organizations:

1. Local police. Contact your local police department to report the incident and get an investigation started, especially if identity theft is involved.
2. Federal Trade Commission (FTC). File a complaint online at ftc.gov/complaint or call 1‑877‑FTC‑HELP.
3. HUD-approved counseling agency. Notify your local HUD reverse mortgage counselor to help you understand your options and next steps.
4. Consumer Financial Protection Bureau (CFPB). Submit a complaint at consumerfinance.gov/complaint.
5. State Attorney General’s office. Contact your state’s consumer protection office.

When filing a report, make sure to provide as much detail as possible to support the investigation. Include any documentation related to the incident, such as emails, contracts, or written communication, along with the names, phone numbers, company information, and other details associated with the suspected scam. Thorough documentation can help investigators assess the situation more effectively and may help prevent others from being targeted by similar scams.

References

[1] Federal Bureau of Investigation, “Elder Fraud,” FBI. [Online]. Available: https://www.fbi.gov/how-we-can-help-you/scams-and-safety/common-frauds-and-scams/elder-fraud