Reverse mortgages don’t always help older adults

Mamie Rose wanted her last years to be simple. She was already in her 80s. She bought her Northside home 40 years earlier. Her husband had died. Her children were grown, leading lives of their own.

She didn't want to worry about mortgage payments, repairs or insurance. Her daughter told her about a "reverse mortgage."

It sounded ideal – a lender gives her money and pays off the mortgage. She just needed to pay insurance and taxes, and she couldn't move. In exchange, when she died, the lender would take her home, unless her children decided it was worth it to pay back the mortgage.

Five years later, Mamie Rose is still alive at 90, and her sons are fighting to keep the lender from kicking her out of her home. Rose, like other elders before her, signed up for a reverse mortgage without knowing all the requirements. Now, she might lose her home.

Reverse mortgages allow people who are 62 and older to basically sell their homes to lenders, but remain living in and owning the home until they die. It's an attractive deal, and for plenty of people it gives them increased financial security near the end of their lives.

The mortgages become problematic when the older people miss insurance or tax payments and the lenders foreclose, leaving them homeless and in debt. If lenders find that the grass isn't mowed or no one answers the door, attorneys say, then the companies might foreclose, arguing the homeowner doesn't live there anymore.

Plenty of people who sign up for reverse mortgages end up in court fighting to hold on to the house.

In October, 101 reverse mortgage foreclosures were active in Duval County, said Maren Hayes, who manages cases in the foreclosure division at the Duval County Courthouse. Reverse mortgage foreclosures were handled just like normal foreclosures until recently, so the courts don't know how many cases existed before.

The attraction of reverse mortgages is easy to understand. They provide the elderly with money to supplement pensions or Social Security checks.

They also are advertised heavily. Former GOP Sen. Fred Thompson of Tennessee, a longtime actor before he turned to politics, pitches the reverse mortgages heavily in television ads.

Vague recollection

Mamie Rose said her original discussion with the lender's representative is vague.

"I really don't remember it right now," she said about the day the woman from Live Well Financial came to her house.

Live Well senior vice president Lyn Niles didn't answer voicemails left seeking comment.

Mamie Rose's son, David Rose, recalled the visit. His mother had been sick, and she told the lender that she was sick. The woman said it was the best time for her to come over and explain the reverse mortgage, Rose's son said. For two days, he said, the woman met with his mother, counseling her on the reverse mortgage.

"The lady said she's free of rent and everything," he said. "She [Mamie] just stays in her house."

Mamie Rose didn't know she needed to pay homeowners insurance every month. She said recently she doesn't remember anyone ever telling her about it.

In 2012, after five years passed, another son, Ben Rose, noticed that the lender sent her a letter that told her she failed to keep insurance on the house. The lender charged her more than $6,000 for insurance that the company placed on her house.

The only money she had came from her Social Security benefits of $1,200 a month. The lender foreclosed on the house and sold it in April.

Hope for reversal

Ben and David Rose hired attorney Candyce King, and she persuaded the court to undo the sale and reconsider the case. The foreclosure case is in court now, and King hopes she can work out a repayment plan for Mamie Rose.

When the real-estate market crashed, King said, lenders suffered, and they tried to recoup the costs by seizing homes.

"Where a normal person would say, let's try to work this out before we go ahead with foreclosure," King said, "there's a little more of a rush to proceed with foreclosure."

The insurance that the lender charged, King said, was too high.

"They did not choose a fair price," she said. "They could've sought a better insurance premium. They should've notified her."

Foreclosures should not happen when the person who took out the reverse mortgage is alive, according to Michael Gelfand, the Florida Bar lawyer elected to lead the Bar's special section on real estate law. But he said some cases confuse even lawyers and courts.

"The moment you get a foreclosure notice, you should call a lawyer," Gelfand said.

Mixed reviews

Debate still exists on whether reverse mortgages should be permitted, but Gelfand said they're not good or bad on their own. Yes, elders can lose their house when they die, but the mortgages can also give them greater financial independence, he said. It also can let the older people die in the homes where they're most comfortable, instead of having to find a new apartment or assisted-living facility.

AARP supports reverse mortgages, said Lori Trawinski, the organization's banking and finance director. The mortgages are supposed to allow the elderly to borrow against their home's value without having to sell the house or pay back the loan.

The federal government insures the lenders, Trawinski said, so they don't lose money if the house loses value or if the borrower lives longer than the lender expected. She also said the lenders have to wait 24 months before they can foreclose, which should give people enough time to fix whatever problems they face.

The biggest problem that she sees comes from people who use reverse mortgages to receive a one-time lump sum payment instead of choosing a monthly flow of money that will last them longer.

'Don't make it a band-aid'

Reverse mortgages can be extremely helpful, said Ramsey Alwin, vice president of economic security at the National Council on Aging. But the loans are best used as one tool in a toolbox, and not the only thing keeping someone financially afloat.

"It's best to make a reverse mortgage part of your long-term planning," she said. "Don't make it a Band-Aid for all your problems."

Lenders are required to counsel people before giving them a reverse mortgage, but Alwin said some loan companies try to skirt that requirement.

The U.S. Department of Housing and Urban Development created new rules last year, saying spouses couldn't be evicted from a home after their husband or wife died. But spokesman Brian Sullivan conceded that wouldn't impact the people who got the reverse mortgages before 2013.

Anyone who gets a reverse mortgage is supposed to be counseled on how it works, so they should understand the challenges and what needs to be done, Sullivan said.

People who take out reverse mortgages need to be careful and make sure they understand what they're doing, said Jacksonville Senior Circuit Court Judge A.C. Soud. Soud said Jacksonville-area judges noticed an increase in reverse mortgage foreclosures in the last year or so and became alarmed.

Octogenarians in peril

They saw several octogenarians in danger of losing their homes because they didn't pay property taxes, Soud said. Someone might owe $3,000 and still have $50,000 in credit from the mortgage. Many don't realize they could use that credit to pay the property taxes, Soud said.

Rather than having half a dozen judges deal with the complicated issue, the judges decided to appoint one judge, Circuit Judge Michael Weatherby, to handle all cases. That way, Soud said, Weatherby could see the patterns and figure out how to help people in this situation.

Soud said Weatherby would not comment.

When lenders foreclose on a reverse mortgage, the court appoints an attorney to look into the situation and see what can be done to help.

"When you get to be 80 or 85 years old, just saying you have to learn how to manage your money doesn't cut it," Soud said. "The state Legislature should get involved and create a provision that says a customer service representative must call and tell someone that their taxes are past due. Customer service representative should also ask for permission to speak to a relative if someone is having problems, he said.

Weatherby likely will write to the Legislature spelling out the problems and making recommendations, Soud said.