A $5 million class-action lawsuit was filed this month that alleges that two mortgage companies conspired to defraud thousands of elderly reverse mortgage clients by charging them for home inspections that were both illegal and unnecessary.
While reverse mortgages used to be rare, they dramatically increased in the 2000s, rising from 43,000 in 2005 to more than 114,000 in 2009. Reverse mortgages can only be utilized by homeowners who are 62 years or older. Many of these customers find themselves in a home that requires major updating, but they lack the funds to pay for it.
While reverse mortgages do not require the home owner to make a monthly mortgage payment, they are still responsible for the taxes and insurance on the home. If a borrower fails to keep up with the taxes or insurance, he or she goes into default and the mortgage company can foreclose on the house.
If a loan is in default, the mortgage company is allowed to conduct “drive-by” home inspections to assess the state of the property and verify that the owner is still living in the house. The cost of the inspections ranges from $15 to $20 and is added to the amount of the loan, which results in less equity in the house.
While such inspections are generally limited by law to once every 30 days, the class-action lawsuit says Champion Mortgage Co. used automated software to trigger “repeated, unreasonable, and unnecessary” inspections several times a week or even more than once a day and charged hundreds of homeowners for them.
While counseling is now required for any person who wishes to use a reverse mortgage, many common misconceptions still exist about these loans. If you or someone you love is considering a reverse mortgage, don’t trust the advertising to tell you everything you need to know. Here are three reverse mortgage facts to remember:
Reverse mortgages are NOT a government benefit. Most of the mortgages require federal insurance so that the lender will receive the loan amount even if the borrower can’t pay, but the borrower pays for this insurance.
Reverse mortgages ARE a home loan. They have fees and compounding interest that will be repaid when you leave the house- whether you move out or die.
You CAN lose your home because of a reverse mortgage. If you don’t pay your property taxes or homeowners insurance, your loan could go into default, which means the lender can foreclose on the home.
The best way to prevent the need for a reverse mortgage is to layout an estate plan as early as possible. Set goals for your finances and your property- even if you think your estate is small. Our attorneys are experienced in providing estate planning guidance to families of all sizes and situations. Please schedule your free consultation today by calling 855-522-5291.