Lawsuit Accuses Reverse Mortgage Lenders of Fraud
Suit Seeks to Protect Reverse Mortgage Borrowers
A new class action lawsuit accuses two mortgage companies of defrauding hundreds of elderly Washington area residents who obtained reverse mortgages.
The lawsuit asks for $5 million to compensate residents who were charged for unnecessary home inspections that were added to their loan debt.
Reverse mortgages allow elderly homeowners to benefit from their home equity. The owners turn over their loans to mortgage companies, which then allow the residents to live in the houses free of charge. When the residents die, move out or sell the homes, the loan and interest are paid to the mortgage company with any remainder going to the estate.
However, the mortgage companies reserve a right to verify the owners who default on their taxes still live in the homes at a cost of $15 to $20 per inspection. The inspection costs are added to the loan amount.
The inspections are supposed to be limited by law to no more than one per month.
The class action lawsuit says Champion Mortgage Co. and one of its affiliates used automated software to prompt inspections several times per week and sometimes more than once per day. The lawsuit calls the inspections repeated, unreasonable and unnecessary.
Hundreds of Washington area residents were charged for the repeated inspections.
The lawsuit was filed in U.S. District Court for the District of Columbia by the law firm of Tyco & Zavareei, the National Consumer Law Center and AARP’s Legal Counsel for the Elderly.
Two elderly D.C. residents are named as plaintiffs. Their attorneys say the mortgage companies were trying to skim money from them.
The National Reverse Mortgage Lenders Association says the inspections are required for residents in default to ensure the property is being properly maintained.
Some lawyers warn that reverse mortgages should be a last resort for elderly residents who do not want to lose their homes because of the risk they will lose their equity. Recent rule changes have sought to build in more consumer protections, such as limiting interest rate increases and ensuring borrowers can pay their taxes, insurance and upkeep.