Wednesday, March 05, 2008

Nevada AG Warns Of Reverse Mortgage Scams

The Nevada Attorney General’s Bureau of Consumer Protection issued the following consumer advisory with important information concerning reverse mortgages, which allow homeowners to convert some or all of the equity in their homes to cash.

Many older Americans are turning to reverse mortgages to convert equity in their homes to cash, in order to supplement their retirement income, pay for health care expenses, finance home improvements, and meet a myriad of other monetary needs.  To qualify for most reverse mortgage, borrowers must be at least 62 years old and live in the home subject to the mortgage.  Unlike a regular mortgage, however, where the loan comes with the obligation to repay it in monthly installments right away, a reverse mortgage generally does not have to be paid back as long as the borrower remains in the home.

As with anything that sounds too good to be true, however, there is a catch.  Although seniors are generally not required to repay these loans as long as they are living and remain in their homes, once they pass away or permanently leave their homes, the property essentially belongs to the lender.  Under a typical arrangement, the lender places a lien on the property in exchange for the cash it provides to the borrower, which allows the lender to recoup the loan, fees and interest, by selling the home after it is vacated.  This will significantly reduce or eliminate the inheritance that would have otherwise gone to the borrowers surviving loved ones.  As with all matters involving their homes, seniors should get all the facts and carefully consider the fine print before accepting the terms of a reverse mortgage.

The Attorney Generals Bureau of Consumer Protection reminds seniors that whether a reverse mortgage is right for you is a big question.  Consider all of your options.  You may qualify for less costly alternatives.  Please contact the following organizations for more information:

AARP Foundation
601 E Street, NW
Washington, DC 20049
1-800-209-8085
http://www.aarp.org/revmort/list

U.S. Department of Housing and Urban Development (HUD)
451 7th Street, SW
Washington, DC 20410
1-888-466-3487
http://www.hud.gov/offices/hsg/sfh/hecm/rmtopten.cfm

Federal Trade Commission
Consumer Response Center
600 Pennsylvania Avenue, NW
Washington, DC 20580
1-877-FTC-HELP (1-877-382-4357)
http://www.ftc.gov/bcp/menus/consumer/credit.shtm—click on *Mortgages & Your Home*

Finally, seniors who believe they may have encountered a reverse mortgage scam should immediately contact the Attorney General*s Bureau of Consumer Protection at (702) 486-3194 in Las Vegas or (775) 684-1180 in Carson City.  A complaint form, as well as other valuable consumer protection information, is also available on the Attorney General*s website at http://www.ag.state.nv.us.

For other valuable consumer protection information, please visit the Bureau of Consumer Protection website, http://www.ag.state.nv.us/org/bcp/education.htm and/or the State of Nevada*s general fraud information website, http://www.fightfraud.nv.gov

mortgage fraud

1. I don’t see a reference to fraud in the article.  I do however see a very misleading statement “...they pass away or permanently leave their homes, the property essentially belongs to the lender.” This is simply not accurate.  The lender holds a lien, just as they would with any other type of loan.  To say that the family receives less of an inheritance is to ignore the fact that the senior becomes less of a financial burden for the family while alive and because of a reverse mortgage, can leave fewer debts upon their demise.  A senior with a traditional forward mortgage will often live off of charge cards and leave these balances to the estate.  There are many consumer safeguards built in.  For more facts, look to the National Reverse Mortgage Lenders Association.

   Posted by  on  03/05  at  07:26 AM

2. I am extremely disturbed by the consumer advisory issued by the Nevada AG yesterday concerning reverse mortgages.  When an office as prestigious as that issues a warning to seniors, it is important to get the facts correct.  Unfortunately, they did not even come close.

   In the first paragraph of their advisory they state that a reverse mortgage allows homeowners to convert some or all of the equity in their homes to cash.  There has never been a reverse mortgage that allows a homeowner to access all of the equity in their home.

   In the second paragraph they state that to qualify for “most” reverse mortgages you must be at least 62.  The truth is, to qualify for “all” reverse mortgages the borrowers must be at least 62.  They also state that a reverse mortgage “generally” does not have to be paid back as long as the borrower remains in the home.  The truth is, a reverse mortgage “never” has to be paid back as long as the borrower remains in the home.

   The biggest error in their advisory is the statement that when the borrower permanently moves out, the property essentially belongs to the lender.  This is probably the most common misconception about reverse mortgages.  This loan is no different than a forward mortgage.  If you sell your home or pass away with a forward mortgage, the loan on the property must be repaid.  The lender does not take the home and they do not sell it.  It is the responsibility of the owner or the estate to settle the loan.

   It is true that seniors should get all of the facts before they do a reverse mortgage.  That is why FHA/HUD requires that seniors receive counseling by an independent party before they can do a reverse mortgage.  This helps to insure that no senior is taken advantage of. 
   By stating that it is necessary to “carefully consider the fine print before accepting the terms of a reverse mortgage”, the implication is that there may be something that is not in the best interests of the consumer.  It does not matter whom you do a reverse mortgage with, the terms are identical and they are set by FHA/HUD.  Are they implying that a government agency is trying to take advantage of seniors?

   They are correct when they say that seniors should consider all of their options.  If they “qualify for less costly alternatives”, they should certainly look at those options.  I receive calls from dozens of seniors who are not able to take advantage of a reverse mortgage because they refinanced a forward mortgage and now have very little equity left in their home.  Where was the AGs office when these predatory lenders were preying upon seniors?  I would love to know what these “less costly alternatives” are so I can help the seniors who are calling me.
   
   I have seen the positive impact reverse mortgages can have on people and how it changes their lives.  As a result of their misleading consumer advisory, there are probably hundreds of seniors who will not even consider a reverse mortgage.

   Before their office issues an advisory such as this, they need to get the facts from an expert.

   Posted by  on  03/05  at  08:49 AM

3. Is it not REQUIRED that persons 62 and older who are taking out a reverse mortgage go through a counseling process on reverse mortgages before the loan is originated/approved?  Isn’t the counseling done by an approved HUD counselor?  Could the article be more specific as to what scams seniors should look for.  Though I applaud the the writers attempt to make seniors aware that they should get all the facts on reverse mortgages before making a decision, the use of the term “scam” cast a bad light on reverse mortgages as a whole.  Oh yeah and by the way, the lender has a lien on the house.  In the event of the last senior borrowers passing or moving from the property, the lien is either cured by the heirs of the estate who remortgage the home, or it is sold by the family to pay off the lien.  The lender is NOT in the business of handling Real Estate Owned property!  However, I am sure there are situations out there where lenders must sell homes to recoup their money.

   Posted by  on  03/07  at  03:25 AM

4. I applaud the staff writer encouragement to seniors to get all the facts on reverse mortgages before making a decision to obtain this type of mortgage.  However, the writers parroting an advisory that does not outline what to look out for in a scam is a disservice and leads to the wrong conclusion about reverse mortgages.  Seniors 62 and older are are REQUIRED to undergo reverse mortgage counseling by a HUD approved counselor prior to loan origination on a HECM loan. Reverse mortgages are not for every senior over 62.  For senior citizens who are income poor but who’s equity in their home is able to support a reverse mortgage this is an option they can excercise to their benefit.  The statement that the lender owns the home is a mis-state by the writer.  When the last borrower no longer resides on the subject property, the lender does not take possession of it, rather the heirs of the estate have couple options at hand, 1) obtain a forward mortgage or 2) sell the property.  In the event those options are not excercised, the lender will then excercise its right to sell said property to cure the lien.  Whatever proceeds left over after the lien has been satisfied is distributed to the borrowers estate/heirs. 
   There seems to be a distrubing trend among todays news writers who parrot
   rather then report balanced and well research news.  What ashame!

   Posted by  on  03/07  at  05:03 AM

5. I agree many of our elderly population have chosen this option to offset the rise in house insurance and taxes.  They do need to be careful and maybe a course should be taken to be sure they do understand what this means in detail.

   Posted by  on  03/07  at  05:36 AM

6. As a resident of Nevada I am embarrassed by the comments of the AG’s office.  When I saw a news report on the NBC affiliate I immediately sent her an email suggesting they do some fact checking; I got no response.

   I know the AG is trying to protect people but passing on bad info only perpetuated the misconceptions that keep many seniors from getting more out of their golden years,

   Posted by  on  03/08  at  05:06 PM

7. My dad is a senior citzen who signed a trust aggreement....He did not understand that he signed both a warranty deed and trust agreement giving the investor 75% of his property value..The trust aggreementexpired in 4/08… The property was in prior foreclosure...The company appeared to paid 6000 dollars to get it out..He want 25,000 to give the property back..What are our options,,, My dad did not what he was signing..There was no witness...Per my father…

   Posted by  on  08/08  at  12:57 PM

8. Valerie,

   Your father had it coming.  I have plenty of property, myself.  My advice is tell your dad to shack-up with a wealthy heiress.  Worked for me.

   Posted by  on  09/06  at  12:11 PM