When obtaining a reverse mortgage, it’s important to understand not only your obligations, but also your rights. The right (actually a requirement) to counseling is already widely known, but here’s another one for you: the Right of Rescission.
Often referred to as a cancellation clause, the Reverse Mortgage Right of Rescission is just that. If for any reason, you are unhappy with your decision and/or wish to cancel the reverse mortgage, you have 3 business days to do so. That’s 3 days after you’ve already signed the documents and have technically already obtained the reverse mortgage. Best of all, there are no penalty fees associated with such a cancellation. The lender must return all of the closing costs, minus any interest on any funds that you have already received.
Of course, most borrowers wouldn’t go through the trouble of obtaining a reverse mortgage only to exercise this right of rescission. If you have any doubts, it’s best to work through them before you sign the paperwork and obtain access to the funds. Still, there’s always the possibility of getting wrapped up in the false idea of “free money” and only after the fact understanding the implications of what you’ve agreed to. We’ve all heard stories about aggressive marketing practices and exploitation of seniors. Thanks to the cancellation clause, this is less of a concern since family members (and the borrowers, themselves) can undo the decision after-the-fact.
If you wish to exercise your right of rescission, simply contact the lender in writing within 3 business days of closing on the mortgage. Send the request using certified mail and save a copy for your records. “Once the lender receives your notification they have 20 days to return any unused funds after they have retained a portion for the financing you received within the three-day window.” Any reputable lender should honor your request, though it’s still a good idea to confirm ahead of time that this clause is included in the mortgage contract.
If you believe your rights as a borrower have been violated and/or wish to report fraud, you can file a complaint with Federal Trade Commission. You can do that online at ftc.gov or by phone at 1-877-FTC-HELP (1-877-382-4357).
