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Good Afternoon,

I am hoping you can help me with something. My mother in her haste did a reverse mortgage. We as her children were not aware of it. Here she is 10 years later and now the chickens have come to roost. in my opinion.

First, she is with Champion Mortgage, who I have heard and read nothing good. They are very vague on the phone and it is difficult to get an actual person. Secondly, she let her flood insurance lapse 3 months, in doing so Champion tacked a $5793 flood insurance policy on to her loan. The policy that she carries is $300 a month. Once she was able to get the policy back in force, submitted the documents they said they would be able to cancel theirs. They issued a $4270 credit and now looking for the balance of $1523.88. They are saying nonpayment of this amount (which is supposed to be 3 months of coverage) will result in foreclosure.

I feel that Champion Mortgage is using this to take possession of my mother’s home. I don’t feel as that amount is correct. So, I am trying to contact Lloyds of London. The documents sent as the insurance information is vague at most. The description says dwelling. There is no other information on the policy description.

I am unable to validate the Insurance information currently. I have reached out to NAIC for help. I am trying to find out her options dealing with Champion Mortgage. She seems to think at the 10-year mark something was supposed to happen. Are you aware of what was supposed to happen at the 10 yr. mark?

Do you know if this is really something they can do? Foreclose for this amount? Any help and information you can provide would be greatly appreciated.

Thank you in advance – Valerie

I am sorry you are having such difficulties with the servicer.  Do you have a written authorization from your mom to speak on her behalf and for Champion to talk to you about her loan?

If not, that would be the first thing I would suggest. Due the financial privacy laws, lenders are very hesitant to give any information whatsoever to anyone who is not a borrower on the account without express authorization.

Obtain Authorization from Servicing 

Once they have written authorization or a valid Power of Attorney authorizing you to contact them on behalf of mom’s loan, that should rectify the communication issue.

With regard to the insurance itself.  The type of policy that the lender has to place on a home when borrowers let the insurance lapse is called a force-placed policy.

It is extremely expensive and covers only the dwelling itself and none of the contents.

This is true for all loans and not just reverse mortgages.  Mom should have received several notices requesting the new insurance policy long before the lender placed the coverage.

Does she have any notices from the lender?

Those notices usually spell out the terms of the coverage, the cost and the borrowers’ rights to cancel and at what prorated cost.

I cannot tell you what the prorated cost for flood insurance should be, but the lender should not be able to pad the cost in any way.

I can tell you that if her normal cost for this insurance was $300 a month or would have been $900 for that time when the forced-placed policy was in effect, it would not surprise me that the other policy was almost 170% of the original cost or $1,523.88.

If they have had to advance funds on the borrower’s behalf, then yes, they can take steps to recover.

The lender doesn’t actually get the home though so it is not to their benefit to try to foreclose.

If they had to foreclose, it would go to sale at public auction and the bid starts at the amount owed the lender.

If no one bid any higher, then the lender’s bid would be enough to take the property but even then, on an FHA-insured home, HUD ultimately decides the disposition.

The lender really has no ulterior motive to try to “get the house” but some are better to work with than others when these things do happen.

I would strongly suggest that you contact them once you have that all worked out and see if they are willing to put mom on a schedule so that she doesn’t have to come in with the whole $1524 at one time.

I don’t know what 10-year action you could be referring to.  Is she receiving monthly payments that will end in 10 years?

If so, that would be a term payment option for which she chose a 10-year payout.

Track Down Copy of Loan Documents 

Does mom still have her closing documentation?  If so you could pull out her loan documents and they will tell you if there is any impending action.  See if you can find her set of loan documents and if not, request a set from the lender.

And finally, with regard to Champion, I don’t know any way you could get away from them other than refinancing the loan.

That may or may not be in mom’s best interest but with the missed flood insurance, she would have to be able to qualify for the LESA account where the lender puts money aside to pay the taxes and insurance on the home for her.

If there is not enough money available in the loan to do this, she would not even be eligible for a refinance at this time.

If she does have sufficient funds for the LESA account, it might even be in her best interest as the servicer would pay her taxes and insurance for her in the future from funds in the reverse mortgage and she would never have to worry about missing a payment again.

The funds in the LESA are not borrowed funds until the lender actually sends them to a third party on behalf of the borrower (tax assessor or insurance company) and many borrowers like the freedom of not having to make these payments anymore.

ARLO recommends these helpful resources: 

• What Happens When a Reverse Mortgage is Assigned to HUD