New law targets reverse mortgage scams

Advocates for homeowners victimized by reverse mortgage scams are applauding legislation signed into law by Gov. Bruce Rauner this week.

The law requires homeowners to receive counseling from government-approved agencies about the risks of reverse mortgages and mandates a three-day cooling off period before the mortgages can proceed.

In most cases, those who facilitate the mortgages will not be allowed to receive the money directly.

The provisions were designed to curb deceptive practices that pressure homeowners to enter into agreements that can force them into debt and put them at risk of losing their homes.

In January, the Chicago Reporter reported on accusations against Mark Diamond, a Chicago businessman named in dozens of mortgage-related lawsuits stretching back decades. The non-profit Legal Assistance Foundation of Metropolitan Chicago mapped the location of many of Diamond’s victims. Nearly all were black residents on the city’s West and South Sides.

After reading the Reporter’s story about Diamond, State Sen. Patricia Van Pelt (D-5) held a hearing earlier this year in Chicago. About 115 victims of reverse mortgage scams had been identified at the time.

Reverse mortgages allow homeowners 62 years or older to convert part of their home’s value into cash in the form of a loan that doesn’t have to be paid back until the person dies or moves out. If family members want to keep the property, they have to pay off the loan.

Homeowners sometimes turn to reverse mortgages to finance repairs and other big-dollar expenses. Many victims of scams say they didn’t fully understand what they were signing, said Annie Thompson, spokesperson for Illinois Attorney General Lisa Madigan.

Diamond and his employees allegedly persuaded their victims to use the mortgages to pay for home repairs—but often took the money while providing substandard or no repairs. Some of the owners faced foreclosure on homes, even though their previous mortgages had been paid off.

In March, federal agents carried out a search warrant at Diamond’s Logan Square offices.
In June, Judge David Atkins granted an injunction that prohibits Diamond from doing business while a 2009 case that Madigan’s office brought against him works its way through the courts. The suit was filed on behalf of dozens of elderly black homeowners.

Dennis Both, Diamond’s lawyer, did not respond to requests for comment about the allegations against Diamond.

Passed unanimously in the Illinois House and Senate, the bill takes effect on Jan. 1, 2016. As of 2014, more than two dozen states had reverse mortgage laws, according to the National Conference of State Legislatures.

“Strong consumer protections such as those signed into law today can help (homeowners) avoid unscrupulous schemes so they can live out their later years in peace and dignity and not worry about whether the family home will be there for their children and grandchildren,” said Sen. Jacqueline Collins (D-16), the legislation’s chief sponsor.

The Rev. Robin Hood, founder of the Illinois Anti-Foreclosure Coalition, said the law sends a strong message. He started advocating for families after his aunt Lillie Williams told him Diamond convinced her to purchase a reverse mortgage without explaining the terms. She has faced foreclosure and is fighting to stay in her home.

“The governor signing the reverse mortgage bill into law is the beginning step to protecting the most vulnerable consumers in our state— our seniors,” Hood said. “This law will send a message to predatory lenders and criminal offenders like Mark Diamond in the state of Illinois—all eyes are on you.”

Bob Palmer, policy director of the non-profit Housing Action Illinois, the group that initiated the legislation, said his organization’s focus will now shift to developing educational materials with the Attorney General’s office to share with the public.

Collins said she will hold a community event to help educate the public on August 27.

Consumer protections are needed now more than ever, said Liz Caton, housing counselor at the Greater Northwest Side Housing Center. She said she’s seen a large increase over the last year in the number of people getting reverse mortgages and then getting into financial trouble.

“My biggest concern is people are coming to us when they’re already in the process of wanting a reverse mortgage,” Caton said.  “If people got education before they were in that situation, then they can better assess whether they need it or not.”