Widow Reeling from Reverse Mortgage Equity Grab

The following story shows exactly why you need to understand all terms of a mortgage contract before you sign.

Katherine Stephens and her husband signed up in 1988 for what they thought was a great concept for seniors: a reverse mortgage that would pay them $312 a month virtually in perpetuity -- until they died or moved out of their house.

At the time, Katherine was 76 and Harold was 78. Harold later died, leaving Katherine alone in the house. The $312 checks came in like clockwork every month, until early this year when she moved to the nursing home.

The loan contained an "additional interest provision" which gives the lender the right to 100% of all gains in the market value of the property from the date of settlement to the date of final payoff. At the time of the loan settlement in 1988, the appraised value of the Stephenses' house was $83,500 and is now worth appraised at roughly $500,000.

The current lender Wilmington Savings Fund Society (WSFS) is now damanding that Stephens pay:

• $67,586 for the monthly payouts


• $158,218.19 in compounded interest at 11 1/2%


• 100% of the house appreciation since 1988 that is entitled as "additional interest" under the contract

The total owed would be $642,000 but the contract puts the cap on the payouts to the lender at 100% of the current appraised value of the house, $500,000, less selling expenses.

Bottom line: WSFS wants nearly half a million dollars in compensation for total loan advances of $67,586, dribbled out at $312 a month over 18 years.

This information brought to you by the Reverse Mortgage Guide and Reverse Annuity Mortgage Blog.