Huge Problem with Reverse Mortgage Industry

I have always praised the use of Reverse Mortgages as a way for seniors to pay for Home Care so they don’t need to leave their home and move into a long-term care facility.  See, for example, my January 30th, 2010 blog posting on this subject at:

Now I’m Troubled.

Unfortunately, I must now retract my praise, as we have lately been running into a huge problem with the reverse mortgage industry.  It seems that most, if not all, reverse mortgage lenders are now routinely second-guessing the legitimacy of every Power of Attorney document (POA) presented for use in connection with obtaining a reverse mortgage, creating an unnecessary and sometimes insurmountable roadblock for elderly clients who are incapacitated and need a reverse mortgage to be able to afford the home care or home modifications necessary to remain at home and age in place.

Here’s Why.

Here’s what’s happened to two of my clients recently, using two different reverse mortgage lenders:  when the Agent under POA tried to commence the reverse mortgage application process, the reverse mortgage lenders refused to honor the POA unless the Agent (1) obtained a letter from the applicant’s doctor or former doctor stating that the applicant was mentally competent when the POA was originally signed (i.e., a “competency letter”) AND (2) a letter from the applicant’s doctor stating that the applicant is not now mentally competent (i.e., an “incompetency letter”).

Instead of honoring the well-established legal presumption that all adults are competent to sign legal and contractual documents unless proven otherwise (similar to the legal presumption in criminal law that all persons are innocent unless proven guilty), the leaders of the reverse mortgage industry are taking the law into their own hands and reversing the time-honored presumption of competence by essentially presuming that all reverse mortgage applicants were incompetent at the time of signing their Powers of Attorney, and forcing the families of these now-incompetent applicants to prove that these applicants were competent when they signed their Powers of Attorney, often years prior to ever applying for a reverse mortgage.  Worse yet, the reverse mortgage lenders are acting as judge and jury for these applicants, as the lenders are deciding whether to accept the “competency letter” and the “incompetency letter” from the applicant’s physician, assuming these letters can even be obtained.

When I questioned the loan officer in one of these cases, the reply was as follows: “We have discussed this issue with several of our lenders and they all require a doctors’ letter if we are using a poa where someone is incompetent, no matter their age. They want to make sure the person was competent when they signed the poa, and that the person can no longer handle their financial affairs. I understand you would never allow someone to sign a legal document who wasn’t competent but we sometimes run into poas which were printed off the internet.”

I mentioned this travesty to other elder law attorneys around Virginia and around the country and it seems that this is a universal problem that many seniors across the country are running into.  One attorney shared with me that she checked with a reverse mortgage loan officer who has worked for two different reverse mortgage companies, and was advised that this is the policy with both of these reverse mortgage lenders.   According to this attorney, the loan officer acknowledged that this may take the reverse mortgage tool off the table for many seniors as 1) obtaining the required letters is burdensome and may be costly; 2) doctors are much more willing to render an opinion about  incompetency versus competency; and 3) the legal assumption is competency when signing contractual documents, unless there were red flags or actual knowledge to the contrary.

Why is This Such a Huge Problem?

How does this policy eliminate the reverse mortgage as a tool for many seniors?  Let’s look at a typical scenario — the type of situation I see every day.  Let’s say you’re 85, you’ve just had a major stroke, and you’re no longer able to care for yourself.  You either need a live-in caregiver in order to remain in your home or you need to go into a nursing home.  Before your stroke, you had made it clear to your children that, like most elders, you never wanted to go to a nursing home, but would prefer to live out your life at home, with in-home care as needed.  The problem is you can’t afford a live-in caregiver because your only income is Social Security, and you have no assets other than the equity in your home.

Your daughter, acting as Agent under the POA you gave her 3 years before your stroke, has two options:

Option 1:  Your daughter can sell your home and place you in a nursing home.  This option would be quite simple.  POAs are routinely accepted in connection with the sale of homes, without being questioned and second-guessed by title companies and settlement attorneys or the purchaser’s mortgage lender, so your daughter would have no problem selling your home.  As for admitting you to a nursing home, that’s also no problem  — POAs are used every day to sign admission documents to nursing homes and other long-term care facilities.

Option 2:  Your daughter can take out a reverse mortgage and draw out the equity in your home each month to pay for a live-in caregiver.  Your daughter and all your other children would all prefer to honor your wishes and allow you to remain at home with a live-in caregiver.   But wait . . . your daughter tries to get a reverse mortgage and is met by obstacle after obstacle.  Even though your daughter can easily sell your house and move you into a nursing home using your perfectly valid Power of Attorney, the reverse mortgage lender will NOT accept the POA unless your daughter (1) obtains a letter from your doctor or former doctor stating that you were mentally competent when the POA was originally signed AND (2) obtains a letter from your current doctor stating that you are now incompetent.  Unfortunately, your doctor from 3 years ago (when you signed the POA) died two years ago; no one took over his medical practice, and your old medical records are therefore not available, so there is no doctor who can write a letter stating that you were competent 3 years ago when you signed the POA.  Or maybe you were so healthy that you hadn’t been to a doctor for 5 years prior to your stroke (or maybe you’d never been to a doctor prior to your stroke), so there are no medical records from 3 years ago and therefore no doctor to write a letter stating that you were competent 3 years ago when you signed the POA.

The End Result? 

Because of the arbitrary and capricious roadblocks imposed by the reverse mortgage lender in connection with use of your Power of Attorney, your daughter is forced to choose Option 1 — selling your home and placing you in a nursing home.

In my view, the reverse mortgage industry is effectively shooting itself in its collective foot with this unfair policy, as they are turning away the very people who need a reverse mortgage the most — those frail elders who are unable to care for themselves but wish to remain at home and age in place rather than being forced to sell their home and move into a long-term care facility.

Illegal Discrimination in Lending?

Additionally, in my view, this practice by the reverse mortgage industry constitutes illegal discrimination in lending, as the reverse mortgage industry is essentially discriminating against disabled and incapacitated adults by imposing obstacles that are not imposed on able, competent adults.

Discrimination in mortgage lending is prohibited by the federal Fair Housing Act, and HUD’s Office of Fair Housing and Equal Opportunity actively enforces those provisions of the law. According to HUD, The Fair Housing Act makes it unlawful for a mortgage lender to refuse to make a mortgage loan based on “handicap,” defined as ” a physical or mental impairment which substantially limits one or more of such person’s major life activities.”

What to Do?   Forward This Article and File Complaints.

If you or your loved one has experienced this type of discrimination, I encourage you to visit HUD’s Housing Discrimination Complaint Website and file a ” lending discrimination complaint” — either online, by phone, or via mail.  If you’re a fellow Elder Law Attorney and you’ve had clients who have experienced this type of discrimination, please forward this article to your clients (by either forwarding this article via email or directing them to this article online at: and encourage them to visit HUD’s Housing Discrimination Complaint Website and file a complaint.

If HUD and the reverse mortgage industry start getting enough complaints about this issue, perhaps they will reverse their position so that the reverse mortgage can once again be a useful tool for the elders that need it most.

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About Evan H Farr, CELA, CAP

Evan H. Farr is a 4-time Best-Selling author in the field of Elder Law and Estate Planning. In addition to being one of approximately 500 Certified Elder Law Attorneys in the Country, Evan is one of approximately 100 members of the Council of Advanced Practitioners of the National Academy of Elder Law Attorneys and is a Charter Member of the Academy of Special Needs Planners.