Posts Tagged ‘reverse mortgage’

Reverse Mortgage Danger Signals

This week’s Elder Law Issues addresses a problem that is increasingly common in the senior community: the aggressive sale of reverse mortgage arrangements to homeowners who may not really need or benefit from such a financing technique. We saw the following list of danger signals for reverse mortgage sales, prepared by Massachusetts lawyer Frank J. Kautz, II, and we were impressed with his concise but thorough and insightful comments. We reprint it here with his permission; if you want more information about the author or his employer, please check the citations at the bottom of this newsletter.

Reverse mortgages, as useful as they are, can be misused as well.  These are some, not all, of the danger signals that are possible with these loans.  The single biggest danger signal is someone pressuring you to take the loan or to make an immediate decision for any reason other than protecting your home from a foreclosure sale or other similar emergency.  There are other alternatives to reverse mortgages and they should be explored.

  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 the federal Department of Housing and Urban Development and/or your state.  HUD’s lender list is available online.
  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.

About the Author: This week’s guest submission comes from Frank J. Kautz, II, an attorney with Community Service Network, Inc., in Stoneham, Massachusetts. The Community Service Network is a “grass-roots, non-profit agency dedicated to acting as a bridge from individual & family crises to the appropriate service or solution” in the communities north of Boston where it is located.

About the issue: Arizona has not seen the same level of aggressive reverse mortgage sales that other states have experienced. Recent downturns in real estate markets have perhaps reduced the frequency of such sales. But economic turmoil has also put additional stress on many senior households, and the danger of inappropriate reverse mortgage sales remains high. We urge anyone considering a reverse mortgage — or the concerned family members of a senior who has been drawn into the concept — to review Frank Kautz’s list of danger signals.

In our experience, reverse mortgages can be a blessing in some circumstances. The classic reverse mortgage candidate is an older senior, able to live at home for a few more years but lacking the financial resources, and owning a home that would easily provide shelter for those years. Younger seniors, those with other resources, and especially those being counseled to purchase annuities with the reverse mortgage proceeds, should be more cautious about getting independent and experienced advice.

Home Mortgage Lender Pays Damages in Repair Scheme

JUNE 21, 2010 VOLUME 17, NUMBER 20

[This week’s Elder Law Issues article, about a home repair / home loan scheme, was contributed by our friend and colleague Prof. Rebecca Morgan. Prof. Morgan holds the Boston Asset Management Chair in Elder Law (and is the Director of the Elder Law LL.M. program) at Stetson University College of Law. She often provides us with interesting and useful cases and developments, and we appreciate her contributions.]

Clarissa Wade, 89, in somewhat poor health, with bad credit and a limited income had a house that was in need of repairs. A marketing call answered by her daughter and caregiver Shirley resulted in a house call by “Big Mike” Phelps, who, after being shown around the house, quoted a price for the repairs.

Although Shirley told Big Mike that Clarissa didn’t have the money, Big Mike brought in a contract, loan application and credit application – which was in Clarissa’s prior married name, even though Clarissa hadn’t used that name for almost sixty years. Since the title to the home was still in Clarissa’s former name, it appeared that someone had run a title search on Clarissa’s home even before Big Mike made the house call.

As Shirley showed Big Mike out, he told her he would be in touch and that “he got elderly people loans.” Despite Big Mike’s assurance, Shirley remained skeptical that Clarissa’s loan application would be approved since, after all, her mother was 89, with poor credit and little income.

Despite Shirley’s misgivings, about five weeks later Big Mike called to tell Shirley the “good news” that the loan had been approved through Clarion Mortgage Capital, and two representatives from Clarion Mortgage would bring the loan papers to the home for Clarissa to sign. In fact, within ten minutes of Big Mike’s call a Clarion Mortgage loan officer made an appointment and the next day came to the house. Since Clarissa wasn’t feeling well, she asked to have her daughter sign the documents.

Shirley, concerned about a story she’d seen regarding Big Mike and unfinished projects, was assured that the builder wouldn’t get paid until the work was done. Three weeks later, the Clarion Mortgage loan officers returned with what evidently were final loan documents to sign, which Shirley did, even though her mother was present. Work started the next day, the loan closed two days later, and the builder was paid on the same day – interestingly, the payment was more than the original contract price. The job was not finished until late October and Shirley immediately observed problems with the work. In addition, the loan company failed to pay some of Clarissa’s creditors from the loan proceeds.

About six months later Shirley filed suit on her mom’s behalf, claiming fraudulent misrepresentation by Clarion Mortgage regarding the loan proceeds being released to the builder before the work was done. Almost four years after that, the case was tried before a jury and a judgment was returned for Clarissa in the amount of $8,600 on the fraudulent misrepresentation claim. Clarion Mortgage appealed, claiming that the plaintiff had not presented “any evidence” that the loan officers had made any representations to Clarissa or that Clarissa had any knowledge of the loan officers’ alleged representations made to Shirley.

After reviewing the record, the appellate court drew the conclusion that the jury was reasonable in deciding that Clarissa was there and heard the loan officers’ statements. One ironic side-issue: at the trial, Clarion Mortgage filed a motion to keep Clarissa out of the courtroom on the basis that her presence would unduly sway the jury and that the court had already determined she was incapable of taking care of her own interests in the case. On appeal Clarion Mortgage argued that because Clarissa didn’t testify at trial, her case should fail. After disposing of Clarion Mortgage’s other arguments the appellate court affirmed the judgment. Wade v. Clarion Mortgage Capital, Inc. (May 11, 2010)

[Our commentary: The actual legal holding in Clarissa Wade’s case is not terribly expansive. The decision does, though, describe a practice that our clients, their family members and advocates should watch out for. The fact that so many seniors have home equity – even in these times of falling home values – opens the door for manipulative and greedy predators. In the right circumstances someone in Clarissa Wade’s situation might have been helped by a reverse mortgage, a line of credit or a home mortgage that allowed her to pay off bills to reduce her monthly payments and/or fix her home so that she could continue to live there. There were a number of warning signs that suggested this transaction was not entirely on the level – like the fact that a stranger called her without any prior contact, that the entire transaction was so rushed, and that “Big Mike” or someone else had obviously looked up her home ownership even before calling her. Tragically, “Big Mike” and Clarion Mortgage were obviously willing to deal with her despite her failing health and condition, then tried to use those very limitations against her at the later trial.]

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