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Reverse Mortgages Are Proliferating, but It’s Wise to Proceed with Caution
Posted By Carole Fleck On October 15, 2012 @ 6:40 pm In Money Talk | Comments Disabled
Reverse mortgages are growing in popularity as older adults tap their home equity to help them maintain their standard of living in retirement. But these loans come with potentially serious risks and AARP has been working for years to educate older homeowners on reverse mortgages, so they don’t get into trouble.
The New York Times reported Monday about some of the more extreme problems that people can face after taking on a reverse mortgage, including foreclosure. The cases involved seniors whose older spouses were listed as the sole borrowers on the loan. When those older borrowers died, the surviving spouses were left at risk of losing their homes. They often faced the choice of paying back the loan or facing foreclosure, the newspaper reported.
AARP welcomed the Times story. Moreover, Jean Constantine-Davis, a senior attorney with AARP Foundation, says the U.S. Department of Housing and Urban Development is responsible for the foreclosures that the newspaper described. She says HUD has failed to recognize that surviving spouses not listed on reverse mortgages, or on property deeds as homeowners, are protected by law from being displaced from their homes.
“This problem will only worsen as the program grows, unless HUD recognizes its first obligation is to protect homeowners and changes its rules,” Constantine-Davis said.
AARP Foundation Litigation and the law firm of Mehri & Skalet have filed a lawsuit accusing HUD of ignoring the law. You can read a summary of the Bennett v. Donovan case, which challenges the changes HUD made in reverse mortgage policies without any public notice or input. This case is now with the U.S. Court of Appeals for the D.C. Circuit and a decision is expected in 2013.
In addition, AARP Litigation and two private law firms (Kerr & Wagstaffe and Mehri and Skalet) are representing plaintiffs in a class-action lawsuit, Chandler v. Wells Fargo, that alleges that Wells Fargo and the Federal National Mortgage Association failed to abide by the terms of their own contracts. The case is before the U.S. District Court for the Northern District of California.
Meantime, if you’re interested in a reverse mortgage, it’s important to understand the rules and terms and proceed with caution.
Photo credit: 401k 2012 via flickr.com
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