I write about healthy aging, and dealing with aging loved ones.
Opinions expressed by Forbes Contributors are their own.
There are a lot of things reverse mortgage lenders never emphasize when getting people to borrow the equity in their homes. They tell you how great it is and for some, it is indeed a solution to a cash problem. But beware of what can happen as you age and might get behind on your taxes or insurance. The lender can promptly foreclose on your home. It happened to 95 year old Retha Floyd. She was going to lose her house, where she had lived for 50 years.
Initially, Ms. Floyd borrowed equity to do essential home repairs. But she never anticipated getting so short of funds that she failed to keep up with her property taxes. She owed less than $2000. The lender, Nationstar Mortgage LLC, sued her to take the house. Fortunately, Legal Counsel for the Elderly (LCE), affiliated with AARP helped her negotiate a repayment plan and that suit was dismissed. You can be sure that without an attorney, Ms. Floyd would have lost her home.
An LCE attorney in the course of representing Ms. Floyd noticed another ugly thing about the case. There were extra charges in her statements from the lender for two or three inspections, each in a single month. As described in aWashington Post article on this case, Amy Mix, supervising attorney for the LCE consumer fraud and financial abuse unit said that “it is a subtle way of skimming extra money. Because the mortgages have no monthly payments due, homeowners can easily miss seeing the additional fees”.
A lender has the legal right to conduct drive by home inspections when a borrower is in default, to see the state of the property and to verify that the owner is still living in the home. But doing so several times a month and charging the borrower for each one is unnecessary. The lender in Ms. Floyd’s case is alleged to have used automated software to order and/or conduct “repeated, unreasonable, and unnecessary property inspections with the effect of maximizing fee income and cheating borrowers who can least afford it.” A class action lawsuit was filed on her behalf and that of thousands of other similarly situated reverse mortgage borrowers,Retha Floyd v Nationstar Mortgage LLC.
In Ms. Floyd’s situation, the attorneys helping her keep her home discovered a lender practice that appears to be widespread, according to the legal documents. Perhaps the case will end this practice. It may be that not all lenders use the tactic of taking money from borrowers by unreasonable and repeated drive by inspections but if one has done this, there could be others.
Anyone considering a reverse mortgage (home equity conversion mortgages) should know thatone may not be in the same financial positionwhen first taking out the mortgage as you may be some years down the road. As people age, their costs for out of pocket medical needs can rise. Medicare does not cover all medications and treatments you may need. If an older person on a limited income, for example, must choose between buying essential medication or paying the overdue property taxes, she might fall behind on those taxes, putting the roof over her head at immediate risk.
Thelender on the reverse mortgage can and will exercise its right to forecloseof the homeowner gets short of cash to pay her property taxes, insurance or even to maintain the home properly. That information is in the documents the homeowner signs when taking out the reverse mortgage but many people do not seem to understand this. The advertising of these mortgages heavily emphasizes the concept “you can keep your home” but the UNLESS part is not revealed in the ad campaigns.
There may be more than one way to get cash to do needed repairson one’s home. Many people do not fully understand that a reverse mortgage has its own risks and that it is a loan, with fees and interest that accumulates. Any person considering this option must understand that you can indeed lose your home if your income is insufficient to meet all your obligations, such as taxes and insurance, as you age.
Whether the question of a reverse mortgage comes up for you, or for your aging parent or loved one, be sure to think this through for how the future can be affected by the risks Retha Floyd encountered at age 95. Imagine other ways to meet cash needs and avoid this threat.
Always ahead of the highly competitive RGV real estate market, Marilyn Cortez is a Spanish speaking native of the Rio Grande Valley. Born and raised in Mission, Marilyn is committed to her clients, and is recognized as a Top Agent in the Greater McAllen Real Estate area, and within Keller Williams Realty. Since the start of her Real Estate career in 2007, she has sold over 40 million dollars of real estate. Known by her fellow real estate agents to be hardworking, honest, dedicated and motivated, Marilyn is knowledgeable in all areas of Real Estate and has built her business on results, with more than 70% of her clients being repeat clients.