Reverse Mortgage Firms Accused Of Charging ‘illegal’ Borrower Fees

A group of consumer and legal advocates is accusing major reverse mortgage companies of illegally overcharging senior homeowners.

Attorneys for the AARP Foundation, Tusa P.C., and Giskan, Solotaroff & Anderson LLP filed a class-action lawsuit on Jan. 16 and publicly announced it Thursday. They allege that several major reverse mortgage servicers unlawfully charged prohibited fees to borrowers.

The lawsuit, filed in the U.S. District Court for the Eastern District of New York, names Compu-Link Corp., dba Celink; Finance of America Reverse LLC; and Carrington Mortgage Services Inc. as defendants. Attorneys also filed a motion to add Longbridge Financial LLC as a defendant in a companion class action.

The suit alleges a systemic practice of improperly charging reverse mortgage borrowers for attorneys’ fees, property inspection fees, property preservation fees and appraisal fees.

The 70-page lawsuit was filed on behalf of Molly-Jeanne Rizzati, administrator of the estate of her mother, Kristine; Tamara Simpson, personal representative of the estate of Judith Forseth; Ellisa Martin, power of attorney for Dathel Balch; Deloris Whitaker, executor of the estate of Rufus Whitaker; Michael Hawkins, administrator of the estate of Maria Graham; and a nationwide class of similarly situated homeowners. The named plaintiffs are from New York, Pennsylvania, Florida and California.

According to the complaint, each of the plaintiffs obtained a Home Equity Conversion Mortgage (HECM). The defendants allegedly added the prohibited fees to borrowers’ loan balances in violation of federal regulations and standardized HECM contracts that strictly limit such charges.

The plaintiffs allege the defendants imposed the fees even when properties were occupied and foreclosure-related requirements had not been met, adding the fees to loan balances when initiating foreclosure proceedings on HECM loans.

The complaint said the disputed fees inflated principal balances, resulting in higher interest charges and mortgage insurance premiums (MIPs) that depleted borrowers’ home equity. This increased the risk that older homeowners could lose their homes, particularly when servicers failed to comply with required federal protections, they allege.

“Because the loan principal was inflated by the Disputed Fees, the interest and MIP added to Class members’ loans was overstated,” the suit reads.

In some cases, borrowers were charged amounts far exceeding limits set by the U.S. Department of Housing and Urban Development (HUD).

The suit claims that Rizzati was charged more than $14,000 in attorneys’ fees, while another plaintiff was charged $17,000, despite HUD limits that cap New York foreclosure attorneys’ fees at $725. The complaint estimates that tens of thousands of HECM borrowers nationwide may have been charged similar fees since 2012.

By charging the disputed fees, the defendants allegedly violated federal law, the HECM contract, and state laws prohibiting unfair and deceptive practices.

“Reverse mortgages are meant to help older adults stay in their homes, not drain the very equity they’re counting on,” William Alvarado Rivera, senior vice president of litigation for AARP Foundation, said in a statement.

“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.”

Spokespeople for Carrington Mortgage Services, Finance of America and Longbridge Financial did not immediately respond to requests for comments by HousingWire‘s Reverse Mortgage Daily. A spokesperson for Celink said the company does not comment on pending litigation.

The plaintiffs are seeking reimbursement or reversal of fees by Celink on behalf of Carrington, Finance of America, Longbridge and other entities.