Reverse Mortgage Danger Signals

Reverse mortgages, as useful as they can be for seniors who need to tap into the equity in their home in order to pay for quality of life items, or to pay for care in the home in order to remain in the home longer, can be misused as a means to separate a senior from his or her money. When misused, the sale of reverse mortgages to seniors amounts to a form of abuse and financial exploitation that should be reported to the state and federal banking authorities.

In Florida, a report can be made to the Department of Financial Services, www.myfloridacfo.com (1-877-693-5236), or the Florida Attorney General’s Office, www.myfloridalegal.com (1-866-966-7226). A complaint may also be made to the Federal Trade Commission at www.ftc.gov (1-877-382-4357), and to the U.S. Department of Housing and Urban Development, www.hud.gov/complaints/fraud_waste.cfm or by calling HUD’s Hotline at 1-800-347-3735. A report can also be made to your local FBI office or local law enforcement.

Here are some danger signals to be aware of prior to entering into a binding contract for a reverse mortgage:

1. You are not getting counseling from a HUD (or state if required) approved
housing counseling agency.

2. Counseling is perfunctory, extremely short, and/or you are not encouraged or
given the chance to ask questions. Counseling is to help you understand the
loan, if you do not, let the counselor know.

3. You are being steered to or directed to see a particular counselor or lender.

4. You are being discouraged from looking at or discussing all of the various loan
     products, even if they might not be useful in your case. It is one thing for you
     to know a loan or product is not useful to you; it is quite another for either the
     lender or the counselor to not give you all of the facts and let you decide.

5. You are being discouraged from talking with family, friends, or the counselor
     regarding the loan, the loan’s terms, or what you intend to do with the money.
     While you may choose not to do so on your own, no one should discourage
     you from talking to anyone, particularly those closest to you, about the loan.

6. The lender is either not licensed or does not have a product approved by either
HUD and/or your state. For the HUD lender list, go to:
http://www.hud.gov/ll/code/llslcrit.cfm.

7. You are asked for any money upon applying for the loan or to pay for any fee
outside of closing or that is not listed on the HUD1 form used by the closing
attorney. Please note, you may have to pay for an appraisal.

8. You are told that providing any money, either up front or to be paid outside of
closing, to any party will speed up processing of the reverse mortgage.
(Fourteen days is the shortest known, sixty days is typical.)

9. You are offered a discount to sign by a certain date and/or are being
     pressured to accept. (While there are occasionally programs offered for a
     limited period of time by various lenders, you should proceed with caution.
     Check with the lender’s home office to make sure it is a valid program and
     find out exactly when it ends. Occasionally, you can even get the offer
     extended for a short time.)

10. Insurance premiums and other loan costs are not explained clearly to you or
to your satisfaction.

11. You have signed a contract or agreement with an estate planning service or
      firm that requires or claims to require, that you obtain a reverse mortgage to
      use their services. Avoid offers in which the service provider promises to
      invest the money from the reverse mortgage.

12. You are being pressured to use equity in your home to buy a financial product
or something else with the proceeds that you do not necessarily need or may
not want or that does not benefit you directly.

13. Taking a spouse’s name off of the deed to make a reverse mortgage work.
You and your spouse may want to do this, but you should be aware and made
aware of the consequences of this decision.

14. Anyone (children, grandchildren, relatives, friends, etc.) is pressuring you to
      get a loan so that they can use either all or some of the money from the
      loan. Even if they promise to pay the money back, or even sign a promissory
      note, using a reverse mortgage to make such a loan may well deprive you of
      the means to help yourself. You must be sure of your own security first and
      foremost.

Please note, you may always contact a counselor at any time to discuss any or all of these issues privately. The counselor is not there to make judgments for you or to pass judgments upon what you intend to do, the counselor is there to give you the information you need to make an informed decision on what you want to do. Ultimately the final choice, like the responsibility, is yours and yours alone.

Parts reprinted from and with the permission of :

Frank J. Kautz, II
Staff Attorney
Community Service Network, Inc.
52 Broadway
Stoneham, MA 02180