Seniors should be alert to reverse mortgage offers

Senior citizens over 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.

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, said Greg Abbott, Texas attorney general.

"Under typical arrangements, 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 otherwise have 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, said Abbott.

Senior citizens may consider hiring an attorney to help review reverse mortgage documents. Seniors may contact the Office of the Attorney General at (800) 252- 5011 or visit www.oag.state.tx.us to find out about legal clinics or 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," said the attorney general. "Homeowners should never sign any paperwork that affects their home unless they clearly understand the impact of what they are signing."

Abbott encouraged seniors to 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 the 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."

Abbott said if a 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.