Reverse mortgages are aggressively marketed to older adults who own their homes. They are touted as a way for older adults to age in place — in other words, to live out their lives in homes that may have been paid off for decades.
Companies selling these products buy commercial ad time on television, may send mailers to seniors’ homes and may cold call homeowners. However, these deals are a trap for the unwary. Few older adults consult lawyers before entering into these mortgages despite the dizzying array of loan documents and requirements and the legal implications of the promises that seniors make when they sign them. This article is not intended to fully explain individual mortgages.
A reverse mortgage is a federally insured and regulated loan product. The basic eligibility feature is that the youngest borrower must be 62 years of age or older. Generally, the borrower must also agree to maintain the property, pay property taxes, and pay homeowners’ insurance and mortgage insurance premiums. As in all mortgages, the mortgage document dictates the terms of the loan. Unless the reverse mortgage company agrees to modify those terms, the borrower will be held strictly to its terms, absent fraud or some kind of predatory loan practice. A failure to abide by the loan requirements could lead to a foreclosure of the mortgage, which can mean going to court. It could also lead to the homeowner needing to make monthly payments to avoid foreclosure.
Loan proceeds may be taken in the form of lump sum payments at closing, a line of credit that can be drawn upon as expenses arise, or set payments for a term of years or for the lives of the homeowners. The needs of each borrower will dictate how the funds will be paid out.
It is likely that the borrowers’ property will need to be appraised. If there is an existing mortgage, that will need to be paid off. Other debts that impair the property — such as judgments that are recorded as liens against the property — may also need to be paid.
Like any other kind of mortgage, a reverse mortgage is a loan that must be paid back. However, so long as the homeowner abides by the terms of the mortgage, the loan does not come due until the last of the borrowers dies or no longer resides in the property. Ideally, this will not happen until the last of the borrowers passes away while living in the home. The amount to be paid back is the lesser of the total debt owed or the value of the property. That means that the borrower’s estate will never owe more than the value of the property. It also means that other assets of the borrower’s estate will not be used to satisfy the mortgage.
If the homeowner’s main focus is to pass the property to the next generations, a reverse mortgage could frustrate that intention. If the last of the borrowing homeowners enters a nursing home, the reverse mortgage will be due and the debt must be satisfied at that time. The borrower should always remember that when they enter into a reverse mortgage they are making the decision that their present-day needs outweigh the future needs of the next generations.
Please consult a lawyer in order to review your individual situation. Referrals for free legal services for people older than 60 are available from the Office for the Aging in the county in which the senior resides. In Delaware County, the telephone number is 832-5750. In Otsego County, the telephone number is 547-4232.
Wayne Shepard is director of the Delaware County Office for the Aging. ‘Senior Scene’ columns can be found at www.thedailystar.com/news/lifestyles/.