How To Avoid Reverse Mortgage Scams

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Hari Ravichandran

CEO and Founder, Aura

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    Are Scammers Trying To Steal Your Home Equity?

    The COVID-19 pandemic has not only impacted the health of Americans – it has also hit their wallets. 

    In 2021, the percentage of Americans worried that they’ll never be able to retire reached an all-time high of 44% [*]. Even worse, 25% of people in their 60s say they couldn’t last more than three months living off their savings. 

    It’s a dire situation across the country. And as a result, many homeowners are looking to refinance their homes to unlock equity and gain some financial breathing room. 

    But homeowners aren’t the only ones eyeing their home’s equity. Criminals are targeting homeowners — especially the elderly — with reverse mortgage scams. 

    Reverse mortgage scams include schemes designed to trick you into signing over your home title, unscrupulous contractors, and exorbitant fees—  all of which can drain your home’s equity.

    So, how can you tell if a reverse mortgage is a scam as opposed to a legitimate financial safety net? 

    In this guide, we’ll explain everything you need to know about reverse mortgage scams, how to identify them, and how to safely benefit from the value of your home. 

    Is a Reverse Mortgage a Rip-Off?

    The short answer is: Sometimes. 

    A reverse mortgage is a legitimate financial product available to homeowners over the age of 62. It  allows them to take out money against the value of their home while continuing to live in it.  

    Think of it as getting a loan advance on the money you would make if you were to sell your home. 

    Here’s how a reverse mortgage typically works:

    • Your primary residence has grown in value, with equity locked in that you would typically only be able to access by selling and moving. 
    • Instead of leaving your home, a reverse mortgage lender pays you an amount based on your needs and the assessed value of your home. 
    • For example, the Federal Housing Administration (FHA) has a reverse mortgage program called the Home Equity Conversion Mortgage (HECM). A HECM lets you borrow against the value of your home while retaining the title to your home.
    • You maintain the title to your home, and the lender pays you in either a lump sum, monthly amounts, a line of credit, or a combination of the three. 
    • The loan amount becomes due — with interest — when you move out permanently, sell your home, reach the end of the predetermined loan period, or die. 

    On the surface, a reverse mortgage sounds like a great deal, especially for homeowners who need financial help and don’t have the credit scores for other types of home loans. 

    But reverse mortgages can get complicated and expensive quickly — making them prime targets for scammers who want to trick you into deals that aren’t in your best interest.

    There are inherent risks in taking out a reverse mortgage. But scammers take those risks even further.

    Learn more: Why Dave Ramsey says reverse mortgages aren’t a good idea — in any situation.

    How Do Reverse Mortgage Scams Work?

    There are several ways scammers can leverage a reverse mortgage to steal your money. 

    Scams can involve phony appraisals of home values, inaccurate loan documents, false mortgages, high fees, useless "info sessions," and outright theft. As the number of senior homeowners choosing reverse mortgages has increased in recent years, so has the prevalence of reverse mortgage scams.

    Scammers target reverse mortgages for a number of reasons:

    • The victims are elderly (which scammers consider easier prey). While spouses can be younger, the primary borrower of an HECM must be 62 or older. 
    • The potential amount available for scams is bigger than ever. Home equity is at a record high in the United States, and it also tends to comprise the majority of the average American's net worth. 
    • Reverse mortgages aren't as common as mortgages. They often include confusing or complex details, which leaves plenty of room to exploit scams.
    • Fraudulent fees are easy to add or inflate. Various fees before, during, and after a reverse mortgage can be artificially inflated or added. Since reverse mortgages don't require regular payments, scammers have an opening to charge unsuspecting borrowers.
    • The risk is relatively low for scammers. Law enforcement sometimes fails to catch or adequately punish reverse mortgage scammers, who thus commit reverse mortgage fraud repeatedly. Any fines are simply viewed as the cost of doing business.

    In the news: After more than a decade of civil suits and investigations, prosecutors finally charged Chicago’s Mark Diamond with scamming more than 122 elderly homeowners out of their home equity [*]. Diamond’s reverse mortgage scams stole more than $10 million from elderly and low-income Americans.

    The 10 Latest Reverse Mortgage Scams To Watch Out For

    1. Trusted family members or caregivers applying for a reverse mortgage in your name
    2. Complex contracts that give away your Power of attorney rights
    3. Identity thieves taking out reverse mortgages in your name
    4. High-pressure investment scams
    5. Home repair or renovation scams (i.e. shady contractors)
    6. Overly complicated reverse mortgage contracts
    7. Misleading advertising from risky lenders
    8. Mortgage payment relief scams
    9. House “flipping” schemes
    10. Uninsured mortgages disguised as “special” deals

    Fraudsters know that if they can trick you into either signing a complex contract or taking out a bad reverse mortgage, they can steal the equity in your home. 

    Here are the most common reverse mortgage scams they use to target you:

    1. Trusted family members applying in your name

    It’s a sad fact, but 60–90% of senior citizen scams are committed by friends, family members, and caregivers [*]. 

    To access their victims’ money, unscrupulous family members or caregivers can coerce victims into applying for reverse mortgages. In some cases, the scammer may even impersonate elderly relatives and take out loans in their name.

    Warning signs of a trusted family member or caregiver scheme:

    • You receive financial documents in the mail for a reverse mortgage that you never applied for, or from a lender you don’t recognize.
    • Your sensitive documents go missing, or you see signs that someone has used your Social Security number (SSN) and personal information. 
    • A family member or caregiver is pressuring you into giving up your power of attorney rights.

    How to avoid this scam:

    Get independent advice before choosing to take out a reverse mortgage. Talk to family members you know you can trust, or friends who have been in similar situations. A personal finance professional would also be a good option if you're unsure what makes the most sense for your specific situation — even if it means paying a consultation fee. 

    Pro tip: Identity theft protection services can alert you if someone is using your personal information for fraud. Aura monitors your most sensitive information — including your SSN, home title, and credit file — and alerts you about any suspicious activity.

    Aura credit monitoring
    Source: Aura identity theft protection

    Related: Understanding Spousal Identity Theft and How It Happens

    2. Complex contracts that give away your power of attorney rights

    Your power of attorney gives you the right to use your finances as you see fit. But many reverse mortgage scammers will try to get you to sign over those rights so that they can guarantee access to the proceeds of the loan. 

    A recent fraud bulletin from the U.S. Department of Housing and Urban Development (HUD) warned of an increase in scammers trying to gain power of attorney rights [*].  

    Warning signs of a power of attorney scheme:

    • You receive financial or legal documents for a loan that you never applied for.
    • The lender pressures or rushes you into signing a contract that you don’t fully understand. 
    • The lender asks for sensitive information such as your SSN and signature, but doesn’t give you a contract in the end. 

    How to avoid this scam:

    Never sign a contract that you don’t fully understand or give out your SSN to someone you don’t know. If someone rushes you or says it’s a “standard” contract, these could be red flags of a scam. If someone in your family asks you to sign a power of attorney document, question their motives and seek independent legal advice. 

    3. Identity thieves taking out reverse mortgages in your name

    Identity thieves often target senior citizens because they are more trusting and likely to give up sensitive information over the phone or through phishing emails. If scammers get enough of your personal information, they could impersonate you and take out a reverse mortgage in your name (or commit other types of loan fraud).

    Warning signs of an identity theft scheme:

    • You see any of the typical warning signs of identity theft.
    • There are inaccuracies or unexpected inquiries or new accounts on your credit file. 
    • Your personal data is available on the Dark Web. (Note: Hackers can buy valid American SSNs for as little as $5 on the Dark Web. Check if your information is at risk by using Aura’s free Dark Web scanner.)

    How to avoid this scam:

    Actively monitor your credit file for signs of fraud or to see if someone is trying to take out loans in your name. You can get a free credit report at AnnualCreditReport.com.

    Pro tip: Sign up for credit monitoring and identity theft protection. Aura monitors your bank accounts, credit file, and personal information for signs of fraud. If anyone is trying to scam you, we’ll let you know in near real-time so that you can shut scammers down. 

    Aura identity theft protection
    Source: Aura credit monitoring and identity theft protection

    4. High-pressure investment scams

    One of the more common reverse mortgage scams occurs when fraudsters try to convince you to take out a reverse mortgage, and invest in a “no risk” investment or annuity. These scammers use estate planning seminars or fake “info sessions” to pitch their investment ideas. 

    But in reality, the investment is a scam; it comes with sky-high management fees or doesn’t yield the returns promised by the scammer. 

    Warning signs of an investment scheme:

    • Anyone who tries to get you to take out a reverse mortgage for a “can’t miss” investment is trying to scam you. 
    • The salesperson can’t explain the investment returns, avoids your questions, or won’t tell you what the premiums cost. 
    • The reverse mortgage loan and investment documents are from different companies. 

    How to avoid this scam:

    First, don’t invest money you can’t afford to lose — this almost certainly includes the money you get from the equity in your home. 

    Second, don’t invest in anything you don’t understand or under any circumstances in which you feel pressured. It’s always worth the time and money to slow down and get independent opinions before making a decision. 

    5. Home repair or renovation scams (i.e. shady contractors) 

    Many older homeowners believe that obtaining a reverse mortgage is a good way to fund home renovations and repairs. But shady contractors have caught on to this trend and use it as an opportunity to overcharge for services or disappear once you’ve paid them. 

    Many scammers will show up unannounced to offer a “free consultation” and then claim you’re eligible for a “rehab loan.”

    Warning signs of a home repair or renovation scheme:

    • A contractor shows up unannounced and offers a free consultation or suggests a reverse mortgage in order to pay for the work. 
    • The scammer proposes work you know doesn’t need to be done — such as replacing a recently repaired roof. 
    • The fraudster promises to start work immediately but delays or disappears once you pay them. 

    How to avoid this scam:

    Always get a second opinion before agreeing to any work on your home. If a contractor claims you’re eligible for a loan or rebate for the work, check the paperwork beforehand.

    6. Overly complicated reverse mortgage contracts

    Some lenders will make bold claims (e.g., you “can’t” lose your home with a reverse mortgage) that won’t be reflected in the contract. Or in other cases, the contracts will be so long and complicated that you won’t be able to understand what your obligations are. 

    The scammer’s goal is to get you to foreclose on your house. Because reverse mortgages are federally insured, the government will make up most of the difference between what’s owed on the loan and what the lender recoups from selling the home. 

    Warning signs of a foreclosure scheme:

    • The contract contains unexplained fees and complicated interest schedules.
    • The lender claims you can move out of your home without worrying about the loan coming due. 
    • The lender claims you don’t have to worry about property taxes, mortgage insurance, or keeping your home in good shape. 

    How to avoid this scam:

    Never sign a contract that you don’t understand. Make sure you understand your obligations and what terms would violate your mortgage contract (such as moving out of your home or missing payments). If in doubt, contact the Federal Housing Administration’s Homeowner Help Line

    In the news: 83-year-old Gerda Graf was one of thousands of senior Florida residents whose home was foreclosed when she couldn’t keep up with her taxes or home maintenance [*].

    7. Misleading advertising from risky lenders 

    Many risky reverse mortgage lenders use misleading TV and radio ads to lure their victims. In most cases, these ads promise “tax-free money” or neglect to explain the risks and costs involved with taking out reverse mortgages. 

    A Consumer Finance Protection Bureau (CFPB) survey found that most people who viewed ads for reverse mortgages were left confused or misinformed [*].

    Warning signs of a misleading advertising scheme:

    • An ad claims you can get "tax-free money." But reverse mortgage proceeds aren't taxed to begin with — because a reverse mortgage is a loan and not income.
    • An ad mischaracterizes a loan and fails to disclose its associated fees, conditions, or risks.
    • The ad sounds too good to be true. 

    How to avoid this scam:

    Follow the golden rule of fraud prevention: If it seems too good to be true, it probably is. Ignore ads for reverse mortgage products, and speak with your financial advisor or bank instead. 

    8. Mortgage payment relief scams

    Many senior citizens are interested in reverse mortgages to pay off their current mortgages or health care debts. But scam artists prey on low-income victims with mortgage scams that are expensive or will cause them to lose their homes. 

    Warning signs of a mortgage payment relief scheme:

    • A scammer claims you can stop a foreclosure by using a reverse mortgage loan.
    • The lender offers a "100% money-back guarantee" to win over the borrower.
    • Your contract includes an upfront, nonrefundable fee to "speed up the approval process."

    How to avoid this scam:

    Do your research to understand the best way to pay off your current debts. Speak with someone at your bank about other loan options that may have better terms and lower interest rates than those of a reverse mortgage.

    9. House “flipping” schemes

    In this scam, a fraudster suggests getting a reverse mortgage to buy another property, fix it up, and resell it for a profit. 

    The victims are usually told that it's "easy money" or that "everyone is doing it," and they must act fast. In reality, scammers could be trying to offload a low-value property they own or charge you a high “consulting fee” for their help. 

    Warning signs of a house-flipping scheme:

    • The scammers spend more time discussing promising properties (that you can buy with your loan) than the reverse mortgage itself. They may even introduce you to real estate agents and mortgage loan officers who are colluding with them to generate commission income.
    • The scammers offer to estimate the amount of profit you can make by flipping a property quickly. They show you a few listings as examples, which they estimate will increase in value.
    • You’re promised a “guaranteed return” on your investment. 

    How to avoid this scam:

    Never trust anyone who promises you a guaranteed return on any investment. If you’re interested in real estate, find your own agent and talk to other people you trust about the opportunity. 

    10. Uninsured mortgages disguised as “special” deals

    Legitimate reverse mortgages are insured by the FHA. But some scammers will push a "special" reverse mortgage loan program that isn't insured. To entice you, they will claim that the costs are lower, and the loan is easier to get approved. 

    In reality, they could steal your equity or get you to sign over power of attorney rights in the process.

    Warning signs of a high-pressure sales scheme:

    • The con artist claims the fact that the loan isn't insured by the FHA is a good thing.
    • The salesperson creates a sense of urgency by saying this is a “special” deal. 
    • You are pushed to sign documents that you don’t understand.

    How to avoid this scam:

    Avoid uninsured mortgages at all costs. If you are uncertain about a lender, contact the FHA to verify that a reverse mortgage loan is legitimate. 

    Still Unsure If You’re Dealing with a Scam? Listen for These Phrases

    While there are many different types of reverse mortgage scams, almost all of them use the same misleading claims to trick you into signing. 

    Here are some of the red flags of a reverse mortgage scam to watch out for: 

    "You won't lose your house"

    What it means: You can indeed lose your house with or without a reverse mortgage loan. Always read the fine print, and ignore any perpetual claims.

    "You can delay Social Security"

    What it means: The Consumer Financial Protection Bureau (CFPB) found that the costs of a reverse mortgage exceed the total Social Security increase that older homeowners would receive by delaying benefits.

    💯 Pro tip: Blocking electronic access and using the Department of Homeland Security’s (DHS) “myE-Verify” Self Lock are two ways to specifically restrict access to your SSN.

    "You can buy a home with no money down"

    What it means: You're getting a distressed or abandoned property based on an inflated appraisal. The scammers will run off with the money when you close the sale.

    "You can get free income" or "You can get tax-free money" 

    What it means: Reverse mortgages are loans, which means you are getting loan payments — not income. That is why the money you receive isn't taxed, why you will have to pay fees and interest, and why if you fail to pay for homeowners' insurance, property taxes, or property maintenance, you could lose your home.

    "You don't need to involve your spouse"

    What it means: If you're older or in poorer health than your spouse, make sure you aren't the only borrower named in the loan. If you die before your spouse does, the loan will become due, leaving your spouse with the bill — and potentially homeless.

    "Sign here!"

    What it means: Some scammers tell you to sign documents that have blank fields. Never sign anything that the other party claims they will fill in later.

    "You can stay in your home forever!"

    What it means: You can stay in your home if you don't miss any payments, continue to cover Homeowners Association (HOA) fees, and maintain your property.

    How To Protect Yourself From Reverse Mortgage Scams

    1. Understand that your home is your equity, and there is a risk in borrowing against property you want to pass on to your heirs.
    2. Always speak with a trusted advisor before signing a legal document. 
    3. If you receive an unsolicited phone call, email, text message, or other solicitation offering a reverse mortgage, ignore it.
    4. Sign up for identity theft protection and family identity theft protection to keep your loved ones safe.
    5. Before you sign a reverse mortgage, consult a HUD-certified housing counselor and make sure that the loan is FHA-approved.
    6. Never sign anything that you don't understand, and discuss any loans you may be considering with as many family members as possible.
    7. Know your rights for reversing a reverse mortgage, also known as "the right of rescission" (like a "cooling-off period"). 
    8. Be wary of high-pressure sales tactics from contractors, financial consultants, or developers.
    9. Check to see if your reverse mortgage lender is legitimate on the Better Business Bureau (BBB), and follow their tips on how to spot a predatory lender.
    10. Sign up for credit monitoring to make sure that no one is taking out a reverse mortgage in your name.

    What To Do if You’re the Victim of a Reverse Mortgage Scam

    If you’ve already signed a contract for a reverse mortgage and you think you’ve been scammed, act fast! 

    The sooner you try to reverse the transaction or report the fraud, the better chance you have of minimizing the damage. 

    • Inform the lender that you want to cancel the loan. Most reverse mortgages come with a “cooling-off period” of three days in which you can end the transaction and pay no fees. All you need to do is inform the lender by mail or other accepted means, and tell them you’ve changed your mind. 
    • Report the fraud to the lender. If you’ve been scammed by a salesperson, reach out to the lender on your contract and report the fraud. They may be able to help. 
    • Contact the police, Federal Trade Commission (FTC), and FBI field offices. Don’t call 911. Instead, call the non-emergency line, ask for the fraud department, and tell them you’d like to file a police  report for fraud. You can also report the fraud to the FTC on IdentityTheft.gov, as well as file a complaint with your local FBI field office.
    • Place a credit freeze with all three credit bureaus (Equifax, Experian, and TransUnion). A freeze stops lenders from accessing your credit, and can slow down scammers. You can also request a free credit report at AnnualCreditReport.com to look for hard inquiries and new accounts that you don’t recognize.
    • Talk to people you trust about the scam. You might feel embarrassed or ashamed that you got caught up in a scam. But fraudsters rely on your silence to keep their scams going. If you have concerns about your reverse mortgage or think you’ve been scammed, talk about it with people you trust. 
    • Sign up for identity theft protection. Aura tracks your personal information, credit and bank accounts, and home title for signs of fraud. We’ll let you know in near real-time if someone is trying to open new accounts in your name, take out a loan without your permission, or change your deed. And if the worst should happen, you’re covered by a $1 million insurance policy for eligible losses resulting from identity theft. 

    Reverse mortgage scammers are among the lowest of the low. Not only do they come after your home, but they prey on elderly and low-income victims. 

    Aura’s identity theft protection services can keep you, your family, and your investments safe. 

    Keep your home equity safe from scammers. Try Aura free for 14 days.

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    1. Financial identity theft and fraud
    2. Medical identity theft
    3. Child identity theft
    4. Elder fraud and estate identity theft
    5. “Friendly” or familial identity theft
    6. Employment identity theft
    7. Criminal identity theft
    8. Tax identity theft
    9. Unemployment and government benefits identity theft
    10. Synthetic identity theft
    11. Identity cloning
    12. Account takeovers (social media, email, etc.)
    13. Social Security number identity theft
    14. Biometric ID theft
    15. Crypto account takeovers