Reverse mortgages can be a big help to seniors who need extra cash, but they can become a big headache for the person’s family after they pass away or move to a nursing facility. Reverse mortgages allow homeowners who are at least 62 years old to borrow money on their house. The loan does not have to be paid back until the house is sold or the last surviving owner moves out or passes away.
This could require the home be sold prior to the senior’s death if a move to a nursing facility is required.
What if the home is “underwater” and the loan amount is greater than the home’s value? In such a case, the owner’s estate is not responsible for the difference. The lender can foreclose on the home, but the lender cannot force the heirs to make up the difference between the loan amount and the value of the home.
In general, at death, the representative of the elder has about 30 days to decide what will be done with the house. . . whether it be foreclosure by the lender or payment of 95% of the current appraised value of the home by the family members. Although this amount will be less than the amount on the loan, the lender is required to write off the difference, and the family will be able to keep the property.
If you have a reverse mortgage, it is very important to discuss these issues with your family so they will be prepared if something should happen to you.
Ms. MacDonald’s practice is limited to Estate Planning, Probate, Elder Law and Trust Administration. Ms. MacDonald maintains her practice in the Santa Clarita Valley at 25115 Avenue Stanford, Suite A-209 in Valencia, California. She can be reached at 661-294-6464.