If you're 62 or older, a reverse mortgage could provide supplemental income to cover costs like daily living expenses and medical care. Here's how it works: A lender gives you an advance on some of your home equity. Interest and fees accrue each month, and the loan usually becomes due when you move out or die. 

While these loans can be a good option for certain homeowners, swindlers can target older adults with reverse mortgage scams. Here's a rundown of 5 of the more common scams.

1. Investment scams

What it is: someone posing as a sales rep tries to convince you to invest your reverse mortgage funds in an investment that promises high returns. 

How it works: the investment could be fraudulent or involve overly high fees, and you risk losing the money you get from the reverse mortgage. 

2. House-flipping scams

What it is: someone posing as a real estate professional suggests using your reverse mortgage proceeds to buy a fixer-upper and promises to help you fix it up and sell it at a profit. 

How it works: the scammer might buy the cheapest home available and run off with the rest of the money, leaving you with nothing but a distressed property. 

3. Home improvement scams

What it is: someone posing as a contractor or maintenance person recommends overpriced home improvement services, suggesting you use a reverse mortgage to pay the bill. 

How it works: the scammer vows to start work immediately but disappears once you pay them, or does the work at overly high fees. 

4. Equity theft

What it is: a team of scammers (e.g., an appraiser, attorney, and loan officer) inflate the appraised value of your home and convince you to take advantage of the equity with a reverse mortgage. 

How it works: after you sign the reverse mortgage documents, the scammers handle the paperwork, taking the proceeds when the loan closes and/or charging overly high fees. 

5. Fraud by someone you know or trust

What it is: someone you know talks you into taking out a reverse mortgage and promises to manage the money if you give them financial power of attorney. 

How it works: the scammer diverts the proceeds into their own account when the loan closes. 

Reverse mortgage red flags

It's a good idea to be suspicious of anyone who seems overly interested in your home equity. Additionally, watch out for the following red flags if the person making the offer:

• Charges a fee for explaining how a reverse mortgage works

• Sends you an unsolicited offer

• Acts pushy or tries to rush you into deciding

• Attempts to sell you a financial product like an annuity

• Explains reserve mortgages in a way that seems vague or deliberately confusing 

• Promises something that looks too good to be true

• Wants to manage your loan proceeds

• Says there's no need to check with your financial advisor or attorney before signing the paperwork

If you suspect someone has scammed you or a loved one, let your housing counselor, loan servicer, or lender know. Then, consider filing a complaint with the Federal Trade Commission, your state Attorney General's office, and your state banking regulatory agency. 

This content is meant for informational purposes only and is not intended to be construed as financial, tax, legal, or insurance advice. Opendoor always encourages you to reach out to an advisor regarding your own situation.