A new lawsuit is challenging a reversal of regulation by the U.S. Department of Housing and Urban Development, insures more than 90 percent of reverse mortgages. Prior to December 2008, HUD rules stated that a borrower or heir would never owe more than the home was worth at the time of repayment, according to the lawsuit. Now, HUD policy that requires heirs to pay the full mortgage balance on a property in order to keep the home unless they are on the deed. Considering that at least 20,000 borrowers have fallen behind on paying property taxes and insurance, HUD stands to lose about $1.4 billion if those delinquent loans are foreclosed. The housing administration insures more than 90 percent of reverse mortgages, and its reverse-mortgage portfolio totals $51 billion.
A “reverse mortgage” is
essentially a loan for a homeowner at least 62 years of age and who owns the primary residence free and clear of any liens. Alternatively, any existing mortgage(s) can be paid off through the reverse mortgage at closing.
Generally speaking, reverse mortgages can not be outlived. As long as at least one homeowner lives in the home as their primary residence and maintains the home in accordance with FHA requirements (keeping taxes and insurance current) the loan does will not become due.
A reverse mortgage loan generally does not have to be repaid until the last surviving homeowner permanently moves out of the property or passes away. Once that happens, the estate has approximately six months to repay the balance of the reverse mortgage or sell the home to pay off the balance. All remaining equity is then inherited by the estate. The estate is not personally liable if the home sells for less than the balance of the reverse mortgage.
Reverse mortgages can make sense for seniors in many different financial situations, but there are also several potential downsides to reverse mortgages:
- Taking out a reverse mortgage often rapidly depletes the home of its equity. This can leave seniors feeling trapped in their homes, without hope of selling and moving, because a home can quickly lose enough value to make the homeowner upside-down.
- Reverse mortgages simply delay the inevitable. Since reverse mortgages require repayment after the homeowner sells the home, refinances, or passes away, the reverse mortgage is only putting off the inevitability of repaying the debt on the house.
- Reverse mortgages are generally much more expensive than conventional home mortgages. Because the lender is taking a risk by delaying payment until after the homeowner passes away or moves, they can justify higher interest rates and closing costs. In the long run, reverse mortgages are a lot more expensive for homeowners and their heirs.
- Reverse mortgages are issued on only 30 to 80 percent of the equity in any particular home, therefore taking out a reverse mortgage may not completely solve your financial problems. Reverse mortgages do not allow you to realize all of the equity in the home, therefore the reasons and expectations for taking out a reverse mortgage must be compared against the actual numbers for the loan.
If you are considering a reverse mortgage, it is important not to rely solely on the marketing materials of lenders. You should consult a financial advisor first, and discuss your motivation for considering a reverse mortgage. Only then can you determine whether your goals can be met by the equity in your home, your credit history, and your overall financial situation.
D.C. is a non-judicial jurisdiction in which foreclosure begins with a Notice of Foreclosure posted or mailed according to the form prescribed by the Recorder of Deeds. The form requires identification of a “Holder of the Note” and a “Security Instrument” recorded in the land records of the District of Columbia. The attorney general’s enforcement statement invites homeowners to inform the Office of the Attorney General if foreclosures “continue to be commenced or pursued with deceptive foreclosure sale notices” so that the Office may consider bringing enforcement actions to stop foreclosure proceedings and seek restitution for consumers. In other words, if you believe that you are being foreclosed upon by a party other than the properly recorded mortgage holder, then you should call the attorney general’s office at (202) 442-9828.
When a spouse is involved, filing bankruptcy can be significantly more complicated than filing a simple individual bankruptcy.