Elderly Risk Losing Homes In Reverse Mortgage Trap

The elderly "looking to cushion their retirement with reverse mortgages are at risk of losing their homes", according to an investigative report prepared by one consumer watchdog. The investigation "found glaring deficiencies in product information and vague default clauses that could be triggered by minor oversights."

To read more, see Elderly risk losing homes in reverse mortgage trap, in The Sydney Morning Herald.

California Reverse Mortgage / Annuity Scam Legislation

The State of California passed (in September, 2006) an amendment (SB 1609) to their existing statute that protects the elderly who obtain reverse mortgages (Cal. Civil Code Section 1923 et. seq.) in a further attempt by the state to stop home equity theft by unscrupulous lenders through the use of reverse mortgage scams. The key provision in the 2006 amendment prohibits lenders from requiring the purchase of an annuity by an elderly borrower when obtaining a reverse mortgage. For more information, see:

• Gov. Schwarzenegger Signs Legislation Protecting Seniors, Consumers from Fraud (includes video of Governor's announcement),
• Senate Bill No. 1609 (SB 1609), for the text of the California legislation amending the existing California reverse mortgage statute,
• California Civil Code Section 1923 et. seq., the existing state statute that protects the elderly in reverse mortgage transactions (in effect since 1998).

Editorial Note:

California may be the first state in the United States to have a statute specifically addressing the prevention of home equity theft by the unscrupulous use of reverse mortgage scams when its statute when into effect in 1998. I don't know of any other state that has such a statute (if anyone knows otherwise, please let me know).

Unless I'm mistaken, California was also the first state in the country (in 1979) to pass statutes specifically addressing the prevention of home equity theft by unscrupulous foreclosure rescue operators, covering both:

• foreclosure purchasers (Home Equity Sales Contract Act - Civil Code Section 1695 et. seq.) and
• foreclosure consultants, which include the "foreclosure sale surplus / excess funds operators" (Mortgage Foreclosure Consultants Act - Civil Code Section 2945 et. seq.)

Inasmuch as the other 49 states apparently failed to follow California's lead on regulating foreclosure rescue operators back in 1979 (it wasn't until a quarter century later when the State of Minnesota passed their anti equity stripping statute, Section 325N in 2004, expiring on 12-31-2009, that other states began to fall into line on regulating foreclosure rescue), I wonder if California will again be ignored on the issue of addressing home equity theft through reverse mortgage scams.

(If past is prologue, maybe we should just wait and see what Minnesota does on reverse mortgage scams before other states decide to fall into line on this issue as well. If so, we can all "set our alarm clocks for the year 2023"; 1998 + 25, if my math is correct.)

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