Brezine Law Offices

Reverse Mortgages

A very simple idea. Reverse mortgage is a reverse mortgage. In a normal mortgage, I pay monthly and my equity grows monthly. In a reverse mortgage, I receive a monthly check and my equity decreases monthly.

This is a great idea for many older persons, especially if they are trapped for cash and their home is their major asset, perhaps their only significant asset, the only asset large enough to pay them monthly payments for life.

Some call them HOUSE RICH BUT CASH POOR. For these folks a reverse mortgage is an idea worth looking at. This reverse mortgage idea is so worth looking at that a lot of hustlers have come up with deals they call reverse mortgages which are very different and very unscrupulous.

A mortgage is a matter of monthly payments and monthly change in equity. Equity goes up if you are paying a mortgage monthly; equity foes down if you are receiving a monthly reverse mortgage check.

The following are not reverse mortgages and not at all so good an idea.

Someone will give you a large lump sum representing a sizeable portion of your home’s value. This happened to Ms. Baker of San Diego (taken from “Tapping Into Homes Can Be Pitfall for the Elderly,” N.Y. Times, 3/2/08):

“Ms. Baker, who lives just outside San Diego, jumped at the offer borrowing a little more than $200,000 through a company called Senior American Funding.

Then the problems began. The saleswoman pressured her to pout the proceeds of the loan into complex investments that put her money out of reach, Ms. Baker said. She received only about $33,000 in cash, far less than she needed for her final years.

‘I thought this was a safe way to make sure I’d never run out of money,’ Ms. Baker said. ‘Then everything became so confusing. No matter where I turned for help, it seemed like things got worse.’”

In a reverse mortgage, you get your equity in regular monthly payments. If you are a 78-year-old female, your life expectancy is ____. That’s ______ more months of living. If you divide the value of our home by _____, you can get a rough estimate of your monthly reverse mortgage check. Then look around for someone who will sell you that product.

If someone wants to sell you something else and call it a reverse mortgage, run away. Or you may have Ms. Baker’s experience:

“The salespeople at Senior American Funding were richly rewarded for their sales: the company received about $8,750 in commissions from Ms. Baker’s annuities, and $7,200 for processing her reverse mortgage.

Last month, Ms. Baker sued Senior American funding, accusing it of fraud and elder abuse.

Mr. Copley, the Senior American Funding co-founder, defended the company’s actions and said Ms. Baker consented to every transaction.

However, Ms. Copley conceded that Ms. Baker was given documents with inaccurate numbers and that sales agents, including him, at the time did not fully understand the products they were selling her.

‘If we made mistakes, I’m sorry,’ he said.

Other lends have also been accused of pushing older homeowners into unwise deals.

A survey released last year by AARP, formerly known as the American Association of Retired Persons, of more than 1,500 reverse mortgage borrowers found that almost one in 10 were urged to buy other financial products, like annuities.

Lawsuits against reverse mortgage companies, including the nation’s largest, Financial Freedom Senior Funding, contend that those firms helped pressure older Americans into bad investments.”

If you are offered a lump sum, it is not a reverse mortgage.

If you wind up accumulating or paying interests, it is not a reverse mortgage.

If it has any other annuity or investment tied to it, it may be a reverse mortgage, but not one you want.

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