BOISE -- A reverse mortgage is a financial tool that many seniors are using as a way to get money for medical expenses, vacations, or anything else. But some seniors are finding there can be negative consequences.
Reverse mortgages allow senior citizens 62 years or older to convert some home equity into cash, as a loan. The loan must be repaid only when the borrower stops living in the home (generally when they die) or other obligations of the mortgage, like paying property tax, aren't met.
Widow: "They prey upon the elderly"
After more than 30 years in the Grand View home she and her husband built, Arlene Shank is set to lose it in May. She says the local paper has a notice of a trustee's sale on May 30.
"I wouldn't wish this onto my worst enemy. It is devastating to lose your home," Shank said.
In October 2008, Shank's husband Clayton signed a reverse mortgage as the sole borrower; Arlene Shank signed as a non-borrower, she says, not understanding the consequences laid out in the agreement.
"I didn't check into things as much as I should of. I trusted people too much," Shank said. "It was told to my husband that he could get a lot more money if he would sign by himself, and that's why he wanted to do that."
Shank says her husband signed on as a way to help the couple become more financially stable and allow her to work less. He was in failing health, and she ultimately became his home caretaker for years until he passed away in October 2011.
"The next morning they were at my door to have me get ready to move. They wanted me out of the house," Shank said.
Because Clayton Shank was the sole borrower, Arlene Shank immediately began getting notices of balance due on the loan. She owes more than $147,000 at this point.
Financial Planner: "It's attractive, and it sounds really good. There are a lot of risks people don't fully understand"
Couples can enter into reverse mortgages together or separately. Financial experts say sometimes the older spouse will sign on as a sole borrower because the other isn't age eligible yet or with the intent to later add them on. Either way, it's a risk.
"It's a huge risk when two people live in the house, two people own the house, one person collateralizes it in a reverse mortgage or any other way," Michael Gibson, Certified Financial Planner, said.
Gibson says reverse mortgages could be a good option for some but advises looking at other options first and taking time to decide.
"Just like a used car. A car is a car is a car. On a reverse mortgage over the lifetime, say if you have a reverse mortgage that lasts 15 or 20 years, a quarter of a point percentage on the interest rate is not worth making a huge mistake," Gibson said.
"One thing that makes me uncomfortable is a couple years ago, Wells Fargo, Bank of America, MetLife were the three biggest players in the reverse mortgage industry. Today, none of those guys are still in the business," Gibson said.
Shank's initial lender was one of those companies, MetLife. KTVB was unable to track down the initial brokers, and after speaking with the new mortgage company now holding the loan, was told they couldn't help either.
AARP Fraud Specialist: "It is a good way of improving your lifestyle after you're 62, but you just need to be very careful."
An AARP volunteer fraud specialist says this type of thing could realistically happen to any senior.
"They have a certain element of trust. I mean, many of the contracts that my dad had with people were via a handshake," Cheryl Tussey, AARP, said. "We're a little more trusting maybe. We don't want to think of people as being negative."
She says lenders will sometimes incorrectly convince homeowners a reverse mortgage is the only option and that it needs to happen fast.
"Their psychology is, you need to do this now because this opportunity will be gone in three days. We only have so much money right now to make these loans, therefore you need to get on board right now," Tussey said.
She advises taking extra time to make financial decisions and participating in HUD counseling before signing anything.
Legal Aid Attorney: "Saying I didn't know that was in there, I didn't understand what I was signing, that's not a defense"
Idaho Legal Aid Attorney Sunrise Ayers specializes in housing and elder law. In general, she says no matter how fast the decision was made, these types of contracts generally stand.
"It's a done deal. So the general rule for contracts law is you're presumed to have read and understood everything in a contract you've signed," Ayers said.
Ayers says their housing line gets around a dozen calls a year asking for help with reverse mortgages. She says many are confused by the process or what will play out. One circumstance she warns of is that the loan is due for repayment when the borrower no longer lives at home; and in addition to a death, she says the borrower going into assisted living would also end the loan.
In some contract cases, Ayers says incompetency or signing under duress could void the agreement. In Shank's case, the attorney says her husband's illness could be a way out, but it's no guarantee.
"I think in this case she should talk to a lawyer about what her rights are about possibly canceling the contract if he wasn't competent at the time he signed it," Ayers said.
Shank: "I am going to stay right here. This is my home. I've been here too many years to give up."
With three months left until her home is set for auction, Shank has been working with attorneys, looking at finance options, and working with friends to try to figure out a way to stay.
"I love my home, and I want to keep mowing the yard, and I want to keep having my flowers, and I want to be here. But I don't want to be hounded by these people that come to my door and tell me they're going to move me out," Shank said.
She's also speaking out to help other senior citizens understand how reverse mortgages work and what it really means to sign as a non-borrower.
"The older folks who are looking to get the equity out of their home, it sounds real good," Shank said. "I would tell people go to your bank and consult them for advice. Don't go to these mortgage companies without really having them checked out."
Tips and Resources
Some tips from our experts if you are interested in a reverse mortgage: Don't rush; Gibson says rates aren't going to vary enough that quickly to really impact the loan. Also, consult with an advisor, an attorney and a HUD reverse mortgage counselor before doing anything.
U.S. Dept. of Housing and Urban Development Reverse Mortgage FAQs