Texas Attorney General Issues Reverse Mortgage Warnings

by Peter G. Miller
November 6th, 2007

Texas attorney general Greg Abbott has issued a warning for those considering a reverse mortgage.

“Some unscrupulous operators,” says Abbott, “will insist that a home needs costly renovations in order for the homeowner to qualify for a loan. Seniors should be particularly wary of consultants who insist on using a specific contractor. If the consultant is unable to help the homeowner obtain a loan, then the homeowner could be left with a sizeable remodeling bill. Refusal to pay the bill could cost the homeowner his or her home. If repairs or renovations are necessary, consumers should deal directly with lenders and registered builders or contractors to compare their offers and recommendations.”

Of course, you can bet that the reverse loan used to relieve the repair debt will not have the best possible rates and terms, either.

The Texas AG says that “senior citizens may consider hiring an attorney to help them review reverse mortgage documents.” May consider? Why so timid? Anyone considering a reverse mortgage should always get independent advice from an attorney who specializes in elder law before signing any reverse mortgage paperwork.

The warnings in Texas, of course, logically apply to all states.

The full release is below:

Senior Alert: Reverse Mortgage Offers

Senior citizens over the age of 62 whose homes carry little or no mortgage debt may receive offers for a specialized loan called a reverse mortgage. Under these arrangements, eligible homeowners are promised an up-front cash payout with no obligation to repay the loan. Even better, the sales pitch goes, seniors can live out the rest of their lives in their own homes – with no monthly mortgage – and have extra money to spend enjoying their retirement years.

So what’s the catch? Although seniors are generally not required to repay these loans, once they pass away or permanently leave their homes, that 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. This allows the lender to recoup the loan, fees and interest, by selling the home after it is vacated.

Reverse mortgages are attractive to many seniors, particularly those who are not concerned with leaving behind property for their relatives or friends to inherit. But homeowners who are considering a reverse mortgage need to know that these agreements significantly reduce or eliminate the inheritance that would have otherwise gone to their surviving loved ones. As with all matters involving their homes, seniors should carefully consider the fine print before accepting the terms of a reverse mortgage.

Seniors who are interested in a reverse mortgage should contact the U.S. Department of Housing and Urban Development (HUD) at (800) 569-4287 for a list of local lenders that are approved by the Federal Housing Administration. HUD can also supply the name of a government-approved debt counseling agency, which can provide useful information to homeowners considering a reverse mortgage.

Senior citizens may consider hiring an attorney to help them review reverse mortgage documents. Seniors can contact the Office of the Attorney General at (800) 252-8011 or visit our Web site at www.oag.state.tx.us to find out about legal clinics and other free legal help.

Even when dealing with legitimate lenders, seniors should carefully consider more than one reverse mortgage offer, because terms of varying offers can differ significantly. Homeowners should NEVER sign any paperwork that affects their home unless they clearly understand the impact of what they are signing. Seniors should walk away from any lender who tries to pressure them into making a quick, spur-of-the-moment decision.

Finally, seniors interested in a reverse mortgage should be very skeptical of “mortgage consultants.” Some unscrupulous operators will insist that a home needs costly renovations in order for the homeowner to qualify for a loan. Seniors should be particularly wary of consultants who insist on using a specific contractor. If the consultant is unable to help the homeowner obtain a loan, then the homeowner could be left with a sizeable remodeling bill. Refusal to pay the bill could cost the homeowner his or her home. If repairs or renovations are necessary, consumers should deal directly with lenders and registered builders or contractors to compare their offers and recommendations. Consumers who believe they have encountered a reverse mortgage scam should immediately contact the Office of the Attorney General.

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2 Responses to “Texas Attorney General Issues Reverse Mortgage Warnings”

  1. Lorraine Says:

    It is my understanding that the accrued mortgage interest begins on the day of inception on the TOTAL amount that could be advanced, not on the actual amount that is advanced.

    For instance, a $700K home could have a reverse mortgage of $300K, the interest would accrue on the full $300,000 beginning day one, plus the amount that could be borrowed would be increase by the unpaid interest. How sad; this type of loan is predatory and should be regulated.

  2. Peter G. Miller Says:

    Lorraine –

    Thanks for your posting.

    I do not believe it is possible to charge interest on principal which has not been advanced. Perhaps one of our reverse mortgage lenders can respond.