Reverse-Mortgage Offers: Watch Out For Scam Artists

Q: I am 71 and own my home free and clear. In the past few months I have received four letters involving reverse-mortgage offers. I suspect these offers came because I am on the American Association of Retired Persons mailing list. I phoned each of the four companies offering reverse mortgages.

Two said they don't make reverse-mortgage loans in this state. If that is true, why did they send me their letters? But the two other firms sent their salespeople to visit me. Both were young women who barely knew what a mortgage is. Their explanations of large fees were very complicated. To say the least, I was not impressed as I concluded reverse mortgages are a senior-citizen rip-off. Am I correct?

A: The reverse-mortgage concept is that the mortgage lender pays the homeowner a fixed monthly amount to improve the senior citizen's lifestyle. To qualify, the homeowner must be at least 65 and own his or her home free and clear, or nearly so. The homeowner does not have to make any monthly mortgage payments. The reverse mortgage is paid off when the house is sold after the owner dies or moves out.

However, some scam artists are taking advantage of senior citizens by loading reverse mortgages with outrageous up-front fees. Since the mortgage does not have to be repaid until the home is sold after the owner either dies or moves out, most seniors don't realize the high fees some reverse-mortgage lenders are charging.

But I hasten to add there are many honest reverse-mortgage lenders. As a precaution, before signing any reverse-mortgage documents, be sure to have them reviewed by your attorney. Also, be certain your children are aware what you are doing because you are spending their inheritance.

Q: We are in the process of trying to sell our home. My wife works as a paralegal in a law firm, so she asked a real-estate lawyer in her office to review a purchase-offer bid we received from a buyer. The lawyer found many things wrong with the pre-printed form and wrote a 16-page counteroffer. The buyer rejected it. Our agent told us it was a big mistake to consult an attorney because he cost us the sale of our home. In the future, how can we best protect ourselves without losing the sale?

A: Most home sellers and buyers don't consult real-estate attorneys. My fellow attorneys won't like me for saying this, but we often cause more problems than we solve or prevent. In your attorney's zeal to look out for you, he went too far and killed the sale by overwhelming the buyer with that massive counteroffer.

The best real-estate attorneys review a proposed transaction and make suggestions about any problems they see. But I can't imagine a home-purchase offer being so unacceptable that a 16-page counteroffer would be necessary.

In the future, if you want your attorney to review a purchase offer, let him or her know you wish to get your home sold and want the attorney to advise you only on any legally unacceptable clauses. A one-page counteroffer is usually sufficient to change any terms in the original offer that you find unacceptable.

Q: Our home has four bedrooms and three bathrooms. But we now have four children and want each child to his or her own bedroom. Our choices are to sell and buy a five-bedroom home or add another bedroom and bathroom to our home. The problem is our home is already the largest house in a neighborhood of two- and three-bedroom houses. Our neighbor is a real-estate agent, and she advises us not to add to our current home. But we think maybe she just wants to sell us another house and get the listing on our current home. Do you think we should add another bedroom to our present home?

A: I presume you like your current neighborhood; otherwise you wouldn't be considering the addition. But owning the only five-bedroom house in your neighborhood will be an "over-improvement. However, if you realize the improvement costs will not be a smart investment and you know you might not be able to get your costs out when you eventually sell the house, you still might wish to go ahead. However, I recommend you seriously consider selling your house and buying a five-bedroom home.

Q: In 1993, my uncle gave me about 15 acres of land, including a small cottage. Over the years, I spent time helping him keep the property in good shape, so I felt the gift deed was his way of saying "thank you." But about a month ago I received a notice from the Internal Revenue Service saying they intend to foreclose on their lien on my land. I knew my uncle had a dispute with the IRS years ago, but can they foreclose on me since I now own the land?

A: Yes. When you received the gift deed from your uncle, you should have bought an owner's title-insurance policy. If you had done so, any recorded IRS income tax lien would have been discovered.

Presuming the IRS tax lien was properly recorded at the time you received your uncle's gift deed, you acquired the property subject to that tax lien. That means if you don't pay off your uncle's tax lien, the IRS can seize the property for unpaid income taxes.

Your situation shows why it is especially important always to obtain an owner's title-insurance policy when acquiring any real estate, especially from friends and relatives. For further details, please consult a local real-estate attorney.