I had two phone calls today from family members of reverse mortgaged senior homeowners. One found me through my blog here and the other from a mutual business acquaintance. These two calls have me writing today about some things that borrowers and their families should know.
First
I know you don’t tell your parents everything and guess what? They don’t tell you everything either. But I think it ‘s a good idea for someone that the senior knows and trusts to understand the reason the senior has taken the reverse mortgage and what happens when the loan comes due. The house belongs to the homeowners, not the kids, but when mom and dad pass away, it can be confusing and frustrating for the heirs if they have no idea what happened and are not prepared.
If they already have a reverse mortgage, they should not “deed” someone else onto title with them (like one of the kids). Technically it can be done - but it could be considered a default action on the reverse mortgage causing the loan to become due and payable.
Not to mention, you could really mess up title to the property. Preparing a deed is serious business, not one that should be done lightly. You should contact a real estate attorney to review the terms and condition of any liens or agreements currently affecting the property, to review and counsel you on the tax and estate ramifications of being added on title and to prepare the deed properly.
Second
If your parents have a reverse mortgage ask them if they are both on the loan. If not you need to have a plan because once the last remaining “borrower” passes away, the loan will become due and payable, will the younger spouse have the funds to repay the loan? Perhaps they have a plan already in place, maybe she has a large life insurance policy on the old guy. That would be great.
Sometimes the younger spouse will have gone “off of title” in order for the older spouse to get a higher loan amount. In the situation I came across today, they did just that and if they hadn’t they would not have gotten enough money from the reverse to payoff their subprime, adjustable, negatively amortizing loan that they couldn’t afford. It would have been worth it for the family and everyone’s peace of mind to come up with another solution at the time they were taking the reverse mortgage.
Possible alternative solutions:
I think reverse mortgages are a wonderful financial tool for seniors who want to age in place in a suitable home. I don’t think they are for everyone, but I do think everyone should know and understand them.
First
I know you don’t tell your parents everything and guess what? They don’t tell you everything either. But I think it ‘s a good idea for someone that the senior knows and trusts to understand the reason the senior has taken the reverse mortgage and what happens when the loan comes due. The house belongs to the homeowners, not the kids, but when mom and dad pass away, it can be confusing and frustrating for the heirs if they have no idea what happened and are not prepared.
If they already have a reverse mortgage, they should not “deed” someone else onto title with them (like one of the kids). Technically it can be done - but it could be considered a default action on the reverse mortgage causing the loan to become due and payable. Not to mention, you could really mess up title to the property. Preparing a deed is serious business, not one that should be done lightly. You should contact a real estate attorney to review the terms and condition of any liens or agreements currently affecting the property, to review and counsel you on the tax and estate ramifications of being added on title and to prepare the deed properly.
Second
If your parents have a reverse mortgage ask them if they are both on the loan. If not you need to have a plan because once the last remaining “borrower” passes away, the loan will become due and payable, will the younger spouse have the funds to repay the loan? Perhaps they have a plan already in place, maybe she has a large life insurance policy on the old guy. That would be great.Sometimes the younger spouse will have gone “off of title” in order for the older spouse to get a higher loan amount. In the situation I came across today, they did just that and if they hadn’t they would not have gotten enough money from the reverse to payoff their subprime, adjustable, negatively amortizing loan that they couldn’t afford. It would have been worth it for the family and everyone’s peace of mind to come up with another solution at the time they were taking the reverse mortgage.
Possible alternative solutions:
1. Instead of taking out a reverse - sell the home and move to a more affordable apartment. The market was much better then and they could have gotten a lot more on their home.
2. If the children wanted to keep the home in the family, perhaps they could have purchased it from the parents and then rented it back to them.
3. Take the reverse in both spouses names since the younger spouse was over 62 and when the loan proceeds were not sufficient to payoff the existing mortgage - the family members could have gifted the shortage amount to the senior couple. This way either spouse could have remained in the home without the loan becoming due and payable at the death of the other.
I think reverse mortgages are a wonderful financial tool for seniors who want to age in place in a suitable home. I don’t think they are for everyone, but I do think everyone should know and understand them.
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