The Financial Ombudsman Service (FOS) has determined that a financial services provider (FSP) should not have provided a reverse mortgage because it could not demonstrate that the borrower obtained independent legal advice as required by the SEQUAL Code of Conduct.

The borrower(an elderly woman) went to a branch with her grandson to obtain a reverse mortgage.

The relevant documents were not sent to a solicitor and the statutory declaration relating to legal advice did not name a solicitor. It could not be established the borrower made an independent decision to enter into the reverse mortgage as her grandson organised the interview with the financial adviser and accompanied her to each of the meetings with the FSP and the finance broker. In addition, the FSP accepted an instruction to pay the loan proceeds directly to the grandson as a “gift”, which was against its own policy of how the proceeds of a reverse mortgage should be used.

FOS concluded that the FSP should have considered the possibility that the borrower was unduly influenced by her grandson, who ultimately obtained the benefit of the loan. The FSP should also have interviewed the borrower separately from her grandson and insisted that she obtain independent and disinterested legal and financial advice without the grandson being present.

The grandson’s Aunt, who was the executrix of the borrower’s Estate, lodged a dispute with FOS after the borrower died. The FSP was required to pay the borrower’s estate the amount the estate paid to the FSP when the house was sold, plus interest on that amount, on the condition that the Estate co-operate in any action the FSP may take to recover the loan proceeds from the grandson.