Reverse mortgage scams are the most commonly known lender scams targeting retirees. While recent government regulations have significantly reduced the bad actors, some scams persist because they can be very lucrative for criminals, allowing them to rob older people of their savings or even their home.
The scam may begin with a direct mail advertisement or invitation to an “investment seminar” that promises to solve all your financial problems, often by magically providing “free” income, “tax-free” money, or allowing you to delay starting Social Security payments.
Not all of these advertisements were fraudulent or from scammers, of course. So, how can you tell the difference between a legitimate reverse mortgage program and one that’s out to fleece you?
Telltale language from scammers or predatory lenders often includes:
- Promises of “free” or “tax-free” money, a “can’t miss” investment, “guaranteed return,” or a “worry-free” retirement
- Promises that you cannot lose your home, that you can stay in your home as long as you want, or that you cannot be forced to leave your home
- High-pressure language suggesting you will “miss out on a tremendous money-saving opportunity,” that the reverse mortgage is a limited time offer, or that you should sign up for additional financial products
- Suggestions that the reverse mortgage is a government program, run by the FHA, HUD, or even the Department of Veterans Affairs (VA), including the use of official-looking seals or logos
Other home equity scams
In addition to risky or outright fraudulent lenders, there are a number of recognizable fraudsters representing themselves as certain types of professionals who are more likely than others to be working a scam.
Here are some common scams:
Home repair or contractor scams
Be wary of shady contractors who contact you out of the blue to offer a “free consultation.” They may claim you’re eligible for a “rehab loan,” or something similar, suggesting you use the loan to pay for work on your home that you know (or suspect) doesn’t need to be done, whether it’s a repair or remodel. Scammers may promise to start work immediately and then delay—or disappear—as soon as they have their money.
Homeowners should always be suspicious of vendors and contractors telling them to take out a reverse mortgage in order to get paid.
In this scam, bad actors pressure you to take out a reverse mortgage in order to invest in a “no risk,” “guaranteed,” or “can’t miss” investment or annuity, frequently in the guise of “estate planning seminars” or fraudulent “info sessions.” Frequently these “investments” have enormous management fees and/or do not (and could not) yield the returns promised. Be suspicious when a salesperson or “advisor” cannot or will not explain any aspect of the deal, including returns or the cost of premiums, or avoids your questions. Another bad sign is often that the reverse mortgage loan documents and the investment documents are from different companies.
Mortgage payment relief scam
A program that helps pay off a current mortgage can sound very appealing to folks on a limited or fixed income facing unexpected healthcare, home maintenance, or other costs. This scam is particularly tempting if you’ve fallen behind on payments and some extra cash would bring you back into good standing. Victims are often told they can prevent foreclosure by obtaining a reverse mortgage, for example.
Home flipping fraud
Scammers will urge you to get a reverse mortgage in order to buy another property, either to live in or to fix up and resell for a tidy profit. They may argue that this arrangement offers “easy money” or that it’s a popular (and by implication, safe) method for boosting retirement income. In this scam, fraudsters may be trying to offload a distressed or low-value property that superficially looks good, charge you an outrageous “consultation fee,” or divert the proceeds of the reverse mortgage to themselves.
You’ll hear more about potential properties than about the reverse mortgage, including estimates of the profit you can generate by flipping one of them. You might be told you must act fast not to miss out on an investment with a “guaranteed” return. This scam may include multiple professionals: real estate agents and mortgage loan officers may be conspiring with a scammer in order to make commissions on the fraudulent transactions.
Power of attorney scams
If someone else gains power of attorney for you, that means they can conduct financial business in your name, including taking out loans like a reverse mortgage. One common goal of this type of scam is getting you to foreclose on your home. Always a bad sign: the lender attempts to pressure you into signing a document or contract you don’t fully understand. It might include unexplained fees and complicated interest rate schedules.
Another sign of a similar scam is when the fraudster demands sensitive personal information, like your Social Security number and signature, but doesn’t give you a contract.
How to protect yourself from reverse mortgage scams and predatory lenders
Protecting yourself from reverse mortgage and similar scams means being vigilant and avoiding anything that seems too good to be true. Be on the lookout for any suspicious language like that mentioned above. And if you’re planning on entering into a financial contract, get independent advice or a second opinion from someone not involved in the transaction.
Understanding the basics of a reverse mortgage, including when it may be the right product, will help you recognize squirrelly offers promising impossible outcomes.
If you’re considering a reverse mortgage and want to make sure you only talk to legitimate lenders, or looking for a way to fund health care costs using home equity, let us help you better understand your options. There’s no fee for speaking with a Wellahead concierge, who can talk you through the options so you can make the decision that’s best for your unique circumstances. No sales talk and no obligation; we’re here to help.