Homeowners ripped off by illegal reverse mortgage charges, class action charges
Older homeowners often rely on reverse mortgages to stay in their homes
A class action lawsuit filed by the AARP Foundation and others charges that several mortgage companies charged their mostly elderly clients illegal fees, unjustly enriching themselves at the expense of older consumers struggling to stay in their homes.
“Reverse mortgages are meant to help older adults stay in their homes, not drain the very equity they’re counting on,” said William Alvarado Rivera, Senior Vice President of Litigation for AARP Foundation. “When companies pad these loans with illegal fees, they deplete the homeowner’s hard-earned assets and, in many cases, put them at risk of losing their homes. Enforcing these laws is essential to protecting older homeowners’ financial security.”
The lawsuit names Compu-Link (Celink), Finance of America Reverse, LLC, and Carrington Mortgage Services, Inc. and a motion seeks to add Longbridge Financial, LLC in a companion class action.
The lawsuits claim that the mortgage lenders unlawfully charge four kinds of prohibited fees: attorneys’ fees, property inspection fees, property preservation fees, and appraisals.
The lawsuit was filed in New York federal court on behalf of five people who were administrators of their parents’ estates and on behalf of a nationwide class of others who suffered from similar actions.
Companies routinely charged forbidden fees, suit alleges
According to the complaint, each of the plaintiffs secured a Home Equity Conversion Mortgage (HECM). HECMs are reverse mortgages federally insured by the U.S. Department of Housing and Urban Development (HUD) that allow older homeowners to convert part of their home equity to cash without selling their home or making monthly mortgage payments.
Because HECMs are federally insured, lenders and loan servicers must comply with important consumer protections for older homeowners that don’t apply to other “proprietary” reverse mortgages.
The complaint alleges the defendants routinely charge HECM borrowers for these fees that are prohibited by law and the HECM contract. Each of the named plaintiffs were unlawfully charged thousands of dollars. For example, one was charged over $14,000 and another plaintiff was charged $17,000 in attorneys’ fees, even though HUD limits New York foreclosure attorneys’ fees to $725.
Tens of thousands of borrowers affected
Potentially tens of thousands of HECM borrowers nationwide have similarly been charged thousands of dollars for these four prohibited fees since 2012. In addition, the complaint alleges that the defendants calculate interest and mortgage insurance premiums on loan balances inflated by these fees, stripping even more equity away from homeowners.
Defendants add these disputed fees unlawfully when they seek to foreclose the HECM loans. The complaint says this practice puts older borrowers at unnecessary risk of losing their homes because servicers often fail to follow basic federal and state protections.
For example, before treating a borrower as in default, servicers are required to send them clear advance notice and time to fix problems that could lead to a foreclosure, such as paying overdue taxes or obtaining insurance. Servicers are also required to offer housing counseling and other options that help keep older borrowers in their homes before taking actions that could force them into default and foreclosure.
State laws provide additional protection before a foreclosure can be filed. New York law, for example, requires servicers to notify the Office on Aging that the borrower is at risk of foreclosure before they can file. By unlawfully charging borrowers for these disputed fees, defendants violate state laws that prohibit unfair and deceptive practices on top of violating federal law and the HECM contract.
Plaintiffs are seeking reimbursement or credit reversal of the fees that the companies allegedly charged unlawfully to borrowers nationwide. Each of the defendants is among the nation’s largest providers and servicers of reverse mortgages. The named plaintiffs are from New York, Pennsylvania, Florida, and California.