Understanding Reverse Mortgage Scams

13 June 2025

Reverse mortgages can be a useful financial tool for seniors looking to supplement their retirement income. But, like anything involving money, there are scammers lurking in the shadows, waiting to take advantage of unsuspecting homeowners.

If you're considering a reverse mortgage or know someone who is, it's crucial to understand the potential scams out there. In this guide, we'll break down everything you need to know to protect yourself and your loved ones from falling victim to fraud.

What Is A Reverse Mortgage?

Before diving into scams, let's first understand what a reverse mortgage is.

A reverse mortgage is a type of home loan designed for homeowners aged 62 and older. It allows them to convert part of their home equity into cash while continuing to live in the house. Unlike a traditional mortgage, where you make monthly payments to the lender, a reverse mortgage pays you—either in a lump sum, monthly payments, or a line of credit. The loan is typically repaid when the homeowner sells the house, moves out, or passes away.

Sounds like a great deal, right? Well, it can be—if done correctly. But unfortunately, scammers exploit the complexity of reverse mortgages to cheat seniors out of their hard-earned money.

Common Reverse Mortgage Scams

Scammers are getting smarter every day. They disguise themselves as professionals, take advantage of legal loopholes, and use deception to drain assets from unsuspecting homeowners. Here are some of the most common reverse mortgage scams you should be aware of:

1. Fake Reverse Mortgage Lenders

Some scammers pose as legitimate lenders, offering seemingly attractive reverse mortgage deals. They often use high-pressure tactics to push homeowners into signing contracts they don't fully understand. These fraudulent lenders may charge high fees, offer misleading terms, or even steal personal information for identity theft.

🚨 Warning Sign:
- The lender demands upfront fees before processing your loan.
- They refuse to provide clear loan details or avoid answering your questions.

💡 How To Avoid It:
- Always work with reputable lenders who are FHA-approved.
- Check reviews and verify credentials before moving forward.

2. Equity Stripping Schemes

In this scam, fraudsters convince homeowners to take out a reverse mortgage and then trick them into signing over the home's title. Once they gain control, they either refinance the home for their own benefit or take out another loan against it, leaving the rightful owner with nothing.

🚨 Warning Sign:
- Someone pressures you into signing paperwork without fully explaining it.
- You're promised large sums of money or unrealistic financial benefits.

💡 How To Avoid It:
- Never sign paperwork without reading it carefully or consulting a trusted advisor.
- If something sounds too good to be true, it probably is.

3. Family Member or Caregiver Fraud

Unfortunately, not all scams come from strangers. In some heartbreaking cases, family members or caregivers manipulate seniors into taking out a reverse mortgage and then steal the funds. This type of elder financial abuse is devastating and often difficult to detect.

🚨 Warning Sign:
- A relative or caregiver insists on handling all financial matters without your involvement.
- Unexpected withdrawals or missing payments appear in bank statements.

💡 How To Avoid It:
- Keep control of your finances and ensure multiple trusted individuals oversee major financial decisions.
- Regularly review your bank and loan statements for suspicious activity.

4. Investment Scams Tied To Reverse Mortgages

Some scammers will encourage you to take out a reverse mortgage and then convince you to "invest" the proceeds into fraudulent schemes. They might promise high returns on an "exclusive" investment opportunity—only to disappear with your money.

🚨 Warning Sign:
- You're pressured to take out a reverse mortgage just to invest in a specific opportunity.
- The investment sounds too good to be true or lacks transparency.

💡 How To Avoid It:
- Speak with a financial advisor before making any investment decisions.
- Be skeptical of anyone who insists you take immediate action.

5. Phony Counseling Agencies

Legitimate reverse mortgages require financial counseling from HUD-approved agencies. However, scammers often pose as fake counseling services, charging hefty fees for advice that’s either false or entirely unnecessary.

🚨 Warning Sign:
- The counseling agency demands a large upfront payment.
- They guarantee your reverse mortgage approval before evaluating your situation.

💡 How To Avoid It:
- Use only HUD-approved counseling services.
- Verify credentials before paying any fees.

How To Protect Yourself From Reverse Mortgage Scams

Now that you know the common scams, let's talk about how to safeguard yourself from becoming a victim.

✅ Work With Reputable Lenders

Always choose lenders who are approved by the Federal Housing Administration (FHA) or the Department of Housing and Urban Development (HUD). Check their credentials and read reviews before signing anything.

✅ Never Pay Large Upfront Fees

Legitimate reverse mortgage lenders do not require large upfront payments. Be wary of anyone asking for money before they’ve even started the process.

✅ Consult A Trusted Financial Advisor

Before making any decisions, seek advice from a financial advisor or attorney who understands reverse mortgages. Their expertise can help you spot potential scams.

✅ Be Cautious Of High-Pressure Sales Tactics

Scammers want you to act fast so you don’t have time to think. If someone is rushing you into a decision, take a step back and do your research.

✅ Read Everything Carefully

Never sign anything you don’t fully understand. Ask questions, seek second opinions, and take your time to review the details.

✅ Report Suspicious Activity

If you suspect fraud, report it immediately. The Federal Trade Commission (FTC), Consumer Financial Protection Bureau (CFPB), and your local attorney general’s office can investigate fraudulent activities.

Final Thoughts

Reverse mortgages can be a helpful financial tool, but they come with risks—especially when scammers are involved. Understanding the warning signs and taking proactive steps to protect yourself can save you from financial disaster.

If you or a loved one is considering a reverse mortgage, stay informed, be cautious, and always work with trustworthy professionals. Remember, if something feels off, trust your instincts and do your due diligence before making any commitments.

Stay safe, stay smart, and don’t let scammers rob you of your financial security!