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Reverse Mortgage: It May Not Be All It’s Cracked Up To Be
A reverse mortgage is a mortgage loan, usually secured over residential real property, which enables the borrower to access the equity value of the property. Specifically, it is a financial agreement in which a homeowner relinquishes equity in their home in exchange for regular payments or a lump sum of money based largely on the value of the house, the age of the homeowner(s), and current interest rates. These loans are typically promoted to older homeowners (62 years of age and older) as a means of supplementing retirement income.
Unlike a traditional mortgage, in which principal declines as you pay down the loan, with a reverse mortgage, the amount owed rises over time as interest on the loan accrues. Furthermore, while all mortgages have costs, reverse mortgage fees, such as the interest rate, loan origination fee, mortgage insurance fee, appraisal fee, title insurance fees, and various other closing costs, are high when compared to a traditional mortgage—and these costs are typically rolled back into the loan.
That said, reverse mortgages usually do not require monthly mortgage payments. Rather, the loan is required to be paid back only once the last surviving homeowner dies, sells the house, or permanently moves out.
While reverse mortgages can be a great help to older homeowners in need of additional cash flow, they can, unfortunately, be a nightmare for the heirs of the homeowner. When the homeowner passes away, whether with a will or without (intestate), the house passes to the homeowner’s legatee(s) or heir(s), respectively. The fiduciary of the deceased homeowner’s estate has the following options:
- Pay off the loan;
- Buy the house from the lender at 95% of its value;
- Sell the house and use the sale proceeds to pay off the loan;
- Deed the house to the lender; or
- Do nothing and let the lender foreclose on the house.
If the value of the house is less than the principal and interest of the loan, the lender cannot pursue the estate of the deceased homeowner or the heirs of the deceased homeowner for the remaining balance of the loan. Instead, the lender will be paid the entirety of the proceeds of the sale of house and will consider the reverse mortgage satisfied.
If the value of the house is greater than the principal and interest of the loan, then that portion of the sale proceeds necessary to satisfy the reverse mortgage will be paid to the lender and the remaining balance will be retained by the deceased homeowner’s estate.
The fiduciary of the deceased homeowner’s estate has only thirty (30) days from the homeowner’s passing to determine what option they would like to proceed with the reverse mortgage and up to six (6) months to arrange financing. Unfortunately, many lenders are not notifying fiduciaries of their rights and are instead immediately beginning foreclosure proceedings upon learning of the homeowner’s passing.
Additionally, many fiduciaries are not aware that if the family wants to keep the house, they can either pay off the reverse mortgage or buy the house from the lender for 95% of the appraised value.
For these reasons, it is important that a fiduciary of an estate hires counsel to address the avenues they may take when dealing with a reverse mortgage of a deceased homeowner.
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Everything has its pros and cons. There are some situations when reverse mortgage proves to be problematic. Especially during the death owner under whose name the mortgage is taken, It leads to a lot of troubles otherwise reverse mortgages are good for older homeowners.
Hi, I appreciate any advice you can give. I have an immediate issue if you can help. I would like to come in to see you, but our expenses are so high now, it may improve in the coming months, but we have an immediate issue. If you have 5 minutes to review the below issue, my email is [email protected]. thank you.
We have a reverse mortgage, my mother had to go to rehab a few months ago, she is due to come back home in a few weeks, the reverse mortgage sent a form in the mail, called an Annual occupancy certificate, they are asking us to sign it, I believe their intent is to call the loan as she has been out of the house for a few months, but I am suspicious as I don’t recall getting this in the mail last year, someone may have told them she was in the rehab, what can they do to us? If they call the loan, we are forced to sell then. I am also trying to refinance the mortgage as their interest is so high, $900 a month, it seems like predatory lending practice they are guilty of, how can we defend ourselves? How do I trust their intent? If we refinance, will the next mortgage company take thousands away from us as well as the first one did? We had to use a reverse mortgage as we had $90k in medical and home care bills, actually much more. So, we had no choice, but there has got to be a better way to take care of the elderly at home. If you can email me and let me know what I should tell the mortgage company, should I sign the document? it’s a basic occupancy certificate, but if I sign it, they may find out she was out of the house and then they can sue us for not disclosing she was out of the house. I don’ think this is fair, no matter what we try to do, there is something that is trying to take something from us, and all we are trying to do is stay in the house, hopefully for another year and a half. Thanks for any advice.
Thank you for your email. If you are still in need of assistance, we are available to assist you. Please contact me at (516) 683-1717 or via email at [email protected] and I will arrange for a meeting with one of our experienced attorneys. I will also address any questions that you may have regarding our legal services. I look forward to hearing from you.
Please Note: This reply is informational only and not legal advice. You should seek the services of an attorney for legal advice.
Sincerely yours,
Janet Corsetti, Client Service Coordinator
I like to learn more about reverse mortgages. I think a loved one needs this information.
Thank you for your email.
We have a Reverse Mortgage Pamphlet you might be interested in on our website. You can sign up to receive it on the home page under the “Resources” tab. You will then see a drop down of choices, and you can click on “Informational Pamphlets”.
If you would like to arrange for an appointment with one of our attorneys, we are available to assist you.
I will address any questions you may have regarding our legal services. Please feel free to contact our office at 516-683-1717.
Please Note: This reply is informational only and not legal advice. You should seek the services of an attorney for legal advice.
Sincerely Yours
Janet Corsetti, Client Service Coordinator
Your critical perspective on reverse mortgages is thought-provoking. What advice would you give to someone considering this option as part of their retirement plan?
Thanks for reaching out to us.
There are many aspects involved with a retirement plan. Therefore, we would need to have a more detailed discussion to properly advise you.
If you are interested in meeting with one of our experienced attorneys, please contact the office at (516) 683-1717 and ask to speak with one of our intake coordinators to arrange for a meeting. We will also answer any questions you may have regarding our services and legal fees.
Please Note: This reply is informational only and not legal advice. You should seek the services of an attorney for legal advice.