Quick Answer
The most common reverse mortgage scams include contractor fraud (arranging your financing for a renovation), deed theft (transferring your title under the guise of assistance), excessive fee charging (particularly on proprietary loans with no federal cap), and fake counselors who are not actually HUD-approved.
- Contractor fraud: a contractor offers to arrange reverse mortgage financing for a home improvement — this conflict of interest is illegal.
- Deed theft: someone offers to help you stay in your home by having you sign documents that actually transfer your title.
- Excessive fees: proprietary origination fees dramatically above market rate — the $42,000 fee example.
- Fake HUD counselors: confirm any counselor is on the official HUD list at hud.gov/findacounselor.
- Pressure tactics: any advisor who pressures you to sign quickly or discourages you from getting a second opinion.
- Investment schemes: using reverse mortgage proceeds to fund an investment product the advisor profits from.
Key Facts
| Topic | Key Fact |
|---|---|
| Most common scam | Contractor fraud — contractor arranges reverse mortgage to pay for work they perform |
| Red flag 1 | Advisor who discourages a second opinion |
| Red flag 2 | Pressure to sign quickly without adequate time to review |
| Red flag 3 | Anyone offering to pay for your HUD counseling (prohibited) |
| Red flag 4 | Origination fees dramatically above market (compare quotes) |
| Red flag 5 | Advisor suggesting you invest reverse mortgage proceeds in their products |
| Verification tool | NMLS Consumer Access — nmlsconsumeraccess.org |
| Government resource | HUD counselor locator — hud.gov/findacounselor |
Detailed Explanation
Reverse mortgage scams typically exploit three characteristics of the target borrower: age (older homeowners may be more trusting), home equity (a valuable asset that makes the effort worthwhile for fraudsters), and the complexity of the product (which creates opportunities to confuse or mislead). Understanding the most common scam patterns is the most effective protection.
Contractor fraud is the FTC's most frequently documented reverse mortgage-related scam. The structure is simple: a contractor offers to renovate your home and arranges the financing through a reverse mortgage — suggesting lenders they work with or offering to help you through the application process. The contractor's financial interest in the reverse mortgage creates a conflict of interest that is prohibited under HUD's guidelines. Legitimate reverse mortgage professionals do not receive referral fees from contractors and contractors do not arrange financing for borrowers.
Deed theft disguised as assistance is the most harmful scam because it can result in the complete loss of the home. These schemes typically involve a person — often posing as a housing counselor, financial advisor, or government representative — who offers to help an at-risk homeowner stay in their home by having them sign documents. The documents, once signed, transfer the deed to the fraudster or a shell company. The homeowner believes they are getting help; they are actually signing away their home. Never sign any document that transfers your property without a real estate attorney reviewing it independently.
Fee fraud is more subtle and common on proprietary reverse mortgages where no federal origination fee cap exists. The case of the borrower who was quoted $42,000 in origination fees on a proprietary loan — before getting a second opinion that saved her tens of thousands of dollars — illustrates how dramatically fees can diverge in the unregulated proprietary market. Always get at least two quotes on any reverse mortgage, compare origination fees specifically, and be suspicious of any fee structure that is dramatically higher than market rate.
Jay Zayer, CRMP — 18 Years Experience
The scam I worry most about is the one that does not look like a scam — the advisor who charges $42,000 on a proprietary loan to a widow who does not know the market rate. It is not illegal. It is not fraud in the criminal sense. But it is predatory. The only protection is information. Knowing that HECM origination fees are capped at $6,000 by federal law, knowing that proprietary fees have no cap but have market rates well below $42,000 on most loan sizes, and knowing that getting a second quote is the most important single consumer protection available — this information is the shield. I include it in every consultation because it protects clients from advisors who do not behave the way I do.
Who This Is Right For
This may be a good fit if:
- Every reverse mortgage borrower — knowing the warning signs is universal consumer protection
- Family members who want to help protect an older relative from potential reverse mortgage fraud
This may NOT be the right fit if:
- There is no situation where understanding reverse mortgage scam warning signs would be inappropriate
Common Misconception
Myth: Reverse mortgage scams are rare and unlikely to affect me.
Fact: Reverse mortgage fraud and predatory practices affect a meaningful number of older homeowners each year. The FTC and HUD document hundreds of cases annually. Awareness and the simple practice of getting a second quote are the most effective protections.
Source: FTC: Reverse mortgage fraud — ftc.gov; HUD OIG: Mortgage fraud — hudoig.gov
Authoritative Sources
- FTC: Reverse mortgage fraud — ftc.gov
- HUD OIG: Mortgage fraud hotline — hudoig.gov (1-800-347-3735)
- CFPB: Protect yourself from reverse mortgage scams — consumerfinance.gov
People Also Ask
How do I verify that a reverse mortgage advisor is legitimate?
Search their name and NMLS number on NMLS Consumer Access (nmlsconsumeraccess.org). Confirm their California license is active with no disciplinary actions. Ask whether they hold the CRMP designation and verify it through NRMLA.
What should I do if I think I have been scammed by a reverse mortgage company?
Contact HUD's Office of Inspector General at 1-800-347-3735, file a complaint with California's DFPI at dfpi.ca.gov, and contact your local district attorney's elder abuse unit. Act quickly — some fraud can be reversed if addressed promptly.
Is it illegal to charge a high origination fee on a proprietary reverse mortgage?
High origination fees on proprietary loans are not illegal — there is no federal cap. However, dramatically above-market fees may constitute predatory lending under state consumer protection law. Always get two quotes and compare origination fees specifically.