New Class Action Lawsuit Alleges Reverse Mortgage Companies Charged Thousands of Dollars in Illegal Fees to Older Homeowners

WASHINGTON— Attorneys for AARP Foundation, Tusa P.C., and Giskan, Solotaroff & Anderson, LLP have filed a new class action lawsuit against Compu-Link (Celink), Finance of America Reverse, LLC, and Carrington Mortgage Services, Inc. They also filed a motion to add Longbridge Financial, LLC as a defendant in a companion class action. Both lawsuits claim that defendants unlawfully charge reverse mortgage borrowers four kinds of prohibited fees: attorneys’ fees, property inspections fees, property preservation fees, and appraisals. 

The new lawsuit was filed in the United States District Court for the Eastern District of New York on behalf of Molly-Jeanne Rizzati as the Administrator for the estate of her mother, Kristine; Tamara Simpson as Personal Representative for the Estate of Judith Forseth; Ellisa Martin as Power of Attorney for Dathel Balch; Deloris Whitaker as Executor for the Estate of Rufus Whitaker; Michael Hawkins as Administrator for the Estate of Maria Graham; and a nationwide class of similarly situated homeowners. 

“Reverse mortgages are meant to help older adults stay in their homes, not drain the very equity they’re counting on,” said William Alvarado Rivera, Senior Vice President of Litigation for AARP Foundation. “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.”

According to the complaint, each of the plaintiffs secured a Home Equity Conversion Mortgage (HECM). HECMs are reverse mortgages federally insured by the U.S. Department of Housing and Urban Development (HUD) that allow older homeowners to convert part of their home equity to cash without selling their home or making monthly mortgage payments. Because HECMs are federally insured, lenders and servicers must comply with important consumer protections for older homeowners that don’t apply to other “proprietary” reverse mortgages.

The complaint alleges the defendants routinely charge HECM borrowers for these fees that are prohibited by law and the HECM contract. Each of the named plaintiffs were unlawfully charged thousands of dollars. For example, Rizzati was charged over $14,000 and another plaintiff was charged $17,000 in attorneys’ fees, even though HUD limits New York foreclosure attorneys’ fees to $725.

Potentially tens of thousands of HECM borrowers nationwide have similarly been charged thousands of dollars for these four prohibited fees since 2012. In addition, the complaint alleges that the defendants calculate interest and mortgage insurance premiums on loan balances inflated by these fees, stripping even more equity away from homeowners.

Defendants add these disputed fees unlawfully when they seek to foreclose the HECM loans. The complaint says this practice puts older borrowers at unnecessary risk of losing their homes because servicers often fail to follow basic federal and state protections. For example, before treating a borrower as in default, servicers are required to send them clear advance notice and time to fix problems that could lead to a foreclosure, such as paying overdue taxes or obtaining insurance. Servicers are also required to offer housing counseling and other options that help keep older borrowers in their homes before taking actions that could force them into default and foreclosure.

State laws provide additional protection before a foreclosure can be filed. New York law, for example, requires servicers to notify the Office on Aging that the borrower is at risk of foreclosure before they can file. By unlawfully charging borrowers for these disputed fees, defendants violate state laws that prohibit unfair and deceptive practices on top of violating federal law and the HECM contract.