Arizona has had a relatively high rate of foreclosures in recent years on reverse mortgages — loans designed for cash-strapped retirees and backed by the equity in their homes.
More than 3,000 reverse-mortgage foreclosures took place in Arizona from 2013 to 2017, according to a new USA TODAY investigation into the practice that found significant disparities in where foreclosures happened.
Such foreclosures occurred six times more often in predominantly black neighborhoods than in neighborhoods that are 80% white, USA TODAY found.
The Arizona numbers put the state in the top 10 for problems associated with these loans, which are designed to provide cash to seniors until they die or otherwise move out of their dwellings. The biggest numbers here weren't in predominantly black communities, however.
Retirement communities including Sun City and Sun City West had some of the highest rates of reverse-mortgage foreclosure both in Arizona and the country. For example, ZIP code 85351 in Sun City had more than 200 such foreclosures, about four times the national average, according to USA TODAY.
Foreclosure concentrations also appeared in south Phoenix and the Maryvale section of west Phoenix.
The Sun City area also was a hotbed for reverse-mortgage marketers during the past decade, the investigation found. In that 85351 ZIP code, seniors took out nearly 1,000 loans over the study period — a loan-origination rate nearly triple the national average.
Certain parts of Arizona, including the Sun City area, are more vulnerable to reverse-mortgage problems simply because they have high concentrations of seniors. Also, Arizona was especially hard hit by the Great Recession and ranked as a top 10 state for all types of foreclosures — not just those involving reverse mortgages.
Foreclosures often are justified as lenders seek to take over a property after the borrower has died or permanently moved out, under terms of an agreement. More recently, foreclosures have waned in Arizona.
"We do not receive many complaints regarding reverse mortgages," said Katie Conner, a spokeswoman for the Arizona Attorney General's Office. Calls to several other consumer-advocacy and legal groups also found little evidence of recurring problems.
Still, those consumers who believe they have been a victim of mortgage-related or other types of fraud may file a complaint with the Attorney General's Office at https://www.azag.gov/complaints/consumer.
More than a decade ago, in 2008, the Attorney General's Office obtained a $1.2 million judgment against Virtual Realty Funding Co. and its owner, Kenneth D. Perkins, for “reverse sales." But that case didn't involve true reverse mortgages.
"VRF designed its loans, which it called reverse sales, to evade laws protecting mortgage borrowers by structuring them as an outright sale of the property by the borrower, who then rented back the home with an option to repurchase it," said a press release at the time from then-Attorney General Terry Goddard and Felecia Rotellini, who headed the Department of Financial Institutions.
Also, neither the company nor Perkins were properly licensed.
Arizona in 2010 became one of the first states to tighten reverse-mortgage safeguards as lawmakers passed legislation requiring that loan applicants receive adequate financial counseling and more prominent disclosures about these transactions, including fees and a clearer explanation of their obligations as borrowers.
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