Reverse Mortgage Danger Signals

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SEPTEMBER 13, 2010 VOLUME 17 NUMBER 28
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.

One Response

  1. Thank you for including this in your blog. I hope it is of use to your readers. One must always remember that a Reverse Mortgage, just like any other financial product, has its uses and misuses. As such, one should always look skeptically at it until one determines its value to be worth doing.

    Good luck to all of your readers!

    Frank

Robert B. Fleming

Attorney

Robert Fleming is a Fellow of both the American College of Trust and Estate Counsel and the National Academy of Elder Law Attorneys. He has been certified as a Specialist in Estate and Trust Law by the State Bar of Arizona‘s Board of Legal Specialization, and he is also a Certified Elder Law Attorney by the National Elder Law Foundation. Robert has a long history of involvement in local, state and national organizations. He is most proud of his instrumental involvement in the Special Needs Alliance, the premier national organization for lawyers dealing with special needs trusts and planning.

Robert has two adult children, two young grandchildren and a wife of over fifty years. He is devoted to all of them. He is also very fond of Rosalind Franklin (his office companion corgi), and his homebound cat Muninn. He just likes people, their pets and their stories.

Elizabeth N.R. Friman

Attorney

Elizabeth Noble Rollings Friman is a principal and licensed fiduciary at Fleming & Curti, PLC. Elizabeth enjoys estate planning and helping families navigate trust and probate administrations. She is passionate about the fiduciary work that she performs as a trustee, personal representative, guardian, and conservator. Elizabeth works with CPAs, financial professionals, case managers, and medical providers to tailor solutions to complex family challenges. Elizabeth is often called upon to serve as a neutral party so that families can avoid protracted legal conflict. Elizabeth relies on the expertise of her team at Fleming & Curti, and as the Firm approaches its third decade, she is proud of the culture of care and consideration that the Firm embodies. Finding workable solutions to sensitive and complex family challenges is something that Elizabeth and the Fleming & Curti team do well.

Amy F. Matheson

Attorney

Amy Farrell Matheson has worked as an attorney at Fleming & Curti since 2006. A member of the Southern Arizona Estate Planning Council, she is primarily responsible for estate planning and probate matters.

Amy graduated from Wellesley College with a double major in political science and English. She is an honors graduate of Suffolk University Law School and has been admitted to practice in Arizona, Massachusetts, New York, and the District of Columbia.

Prior to joining Fleming & Curti, Amy worked for American Public Television in Boston, and with the international trade group at White & Case, LLP, in Washington, D.C.

Amy’s husband, Tom, is an astronomer at NOIRLab and the Head of Time Domain Services, whose main project is ANTARES. Sadly, this does not involve actual time travel. Amy’s twin daughters are high school students; Finn, her Irish Red and White Setter, remains a puppy at heart.

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Matthew M. Mansour

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Matthew is a law clerk who recently earned his law degree from the University of Arizona James E. Rogers College of Law. His undergraduate degree is in psychology from the University of California, Santa Barbara. Matthew has had a passion for advocacy in the Tucson community since his time as a law student representative in the Workers’ Rights Clinic. He also has worked in both the Pima County Attorney’s Office and the Pima County Public Defender’s Office. He enjoys playing basketball, caring for his cat, and listening to audiobooks narrated by the authors.