Reverse Mortgage question(s)
January 25, 2017 4:56 PM   Subscribe

My son and his family live next door to an older woman, and over the years they have become quite close. He mows her yard, repairs things for her, and has taken her to the emergency room more than once, often taking her meals and having her over for dinner when she was able to walk over. She is now in a nursing home after injuring herself repeatedly from falls, and no one is quite sure if she will be returning home. The real question follows on how to deal with a reverse mortgage in a beneficiary situation.

The woman has no family and has stated repeatedly she would like my son and his wife to have her home after she passes. That may or not be the case depending on what actually happens between now and whenever she passes. The question is if this does happen, how does this all work with a reverse mortgage? My son assumes that if they receive the home in her will that in order to keep the home they would have to pay off the reverse mortgage (doable). It is considered a lien against the property.

Some questions have come up when he's been wondering if they are named as the beneficiary would they be given the first right of refusal to buy or pay back the loan on the house? Does the property automatically go to the holder of the reverse mortgage and then any monies left would go to the beneficiaries in the will? Don't get me wrong, the kids aren't hovering in hopes of inheriting this property. They have truly come to love her and the kids even call her grandma. They just want to be prepared if and when this happens. Son has been her POA for some time now, but I reminded him that ends at her death.

I know that you are not my advisor, but all suggestions would be appreciated. And lastly, who would be the best person or entity to talk to? Would it be the bank that holds the mortgage, a lawyer, a financial advisor or maybe all three?
posted by OkTwigs to Work & Money (12 answers total) 1 user marked this as a favorite
Does she have a will?
posted by spitbull at 5:00 PM on January 25, 2017

And if she is mentally competent *she* should be discussing this with her own attorney. As POA and friend/advocate perhaps your son might be involved in this. But these are all questions where a person invested in her best interests and desires would make sure to involve her in any such discussion, first and directly, represented by counsel with expertise in estate plannning.
posted by spitbull at 5:06 PM on January 25, 2017 [2 favorites]

Death of the eligible borrower or failure to occupy the home as the primary residence for a year (sounds like a looming possibility here) both technically constitute default on the reverse mortgage. When the servicer finds out, they will serve the estate with a "due and payable letter," under which the estate has several options, including: cure (not possible in case of death, obviously), sale of the property to pay off the mortgage, permitting foreclosure by the servicer, or deed-in-lieu-of-foreclosure. There will be a time period during which this must be accomplished or the servicer will proceed with foreclosure. If the proceeds of the sale of the house exceed the value of the loan, the excess should go to the estate. (Conversely, if the proceeds of the sale of the house do not cover the value of the loan, the estate owes no further payment.)

Servicers have been known to be very aggressive about foreclosing in the past few years, and selling the house yourself will usually yield a better sale price, so vigilance about when the due and payable period starts running is essential. Assuming that the woman actually wills your son the house (without which none of this matters), he will need to keep in close touch with the executor and be prepared to start the sale of the house as soon as possible.
posted by praemunire at 5:11 PM on January 25, 2017 [3 favorites]

Response by poster: Yes, she has a will.
posted by OkTwigs at 5:20 PM on January 25, 2017

I think they should consult a real estate attorney or an estate attorney. I'd be looking at how something like "first right of refusal" could be codified, if possible, now. If your housing market is hot, I imagine the bank that is doing the reverse mortgage would love to get a very large return on their investment.
posted by amanda at 5:27 PM on January 25, 2017

Yeah, lawyer, because I saw some stories recently about how the reverse mortgage companies basically give you 30 days to put up the balance or GTFO. See also: our new Secretary of the Treasury.
posted by rhizome at 5:39 PM on January 25, 2017 [2 favorites]

They have to prove, and she has to testify, while still with it, that they kept her out of a nursing home for a number of years. She could and should put them on the mortgage as joint tenants, right now, for anything to work. Believe me, when I tell you this.
posted by Oyéah at 6:07 PM on January 25, 2017

The Consumer Financial Protection Bureau (CFPB) has a bunch of information about reverse mortgages available on its website. Additional links near the bottom of the page.
posted by bookdragoness at 7:58 PM on January 25, 2017

The nursing home can also push her to liquidate assets including the home she is not occupying to pay for her care.
There are more players here than you think there are and this is the time for an elder care or estate attorney.
posted by littlewater at 8:39 PM on January 25, 2017 [1 favorite]

If your housing market is hot, I imagine the bank that is doing the reverse mortgage would love to get a very large return on their investment.

It doesn't work like that. The lender is entitled only to repayment of the loan plus accumulated interest (and fees if it has to foreclose). If the house is sold for more than that amount, the estate gets the remainder.

They have to prove, and she has to testify, while still with it, that they kept her out of a nursing home for a number of years.

I'm not sure what this is referring to. The homeowner is required to recertify annually that the house is still her primary residence. With respect to the reverse mortgage itself, that's all that's required.

She could and should put them on the mortgage as joint tenants, right now, for anything to work.

Unless OP's son is himself over 62 and otherwise eligible, he cannot be a borrower on a reverse mortgage. Whether or not he is living in the home will have no effect on the due and payable process. When the borrower dies, the reverse mortgage has to be paid off, one way or another.

I get the impression that people do not understand the subtle and tricky differences between ordinary mortgages and reverse mortgages. It would be better not to give advice if you don't.

But I co-sign those urging her to consult an elder care attorney re: possible mandated Medicaid spend-down in her state if she is so unfortunate as to be stuck in long-term care indefinitely. The rules vary by state, but (depending on how expensive her care is) it's possible that the state could claim the entire equity remaining in her house after the reverse mortgage is paid off.
posted by praemunire at 9:34 PM on January 25, 2017 [8 favorites]

There's something missing from this question, which is any indication of what this elder wants, what her will says, and whether your son has actually discussed all this with her. it's her house. I've just done estate planning with an elder relative I love, and the attorney (who is also my attorney) sent me out of the room before signing off on the will and trusts to confirm that this relative -- his actual client in the moment -- was making declarations of independent and free will despite my filial relationship and long history with the same lawyer.

Your son has a conflict of interest as PoA, in my view.
posted by spitbull at 3:12 AM on January 26, 2017

Response by poster: Spitbull, Son and elder have discussed this frequently. She brings it up, not him. He's not the kind to take advantage of someone and has been a good neighbor to her because that's the way he was raised. All three of my sons take care of their neighbors. One plows out his whole neighborhood after snow, another made sure an elderly neighbor in another town had wood (gratis) to keep her warm through the winter, along with repairing things that came up. They were raised in a rural community where neighbors help neighbors. This isn't the only elderly neighbor he helps out, and I have to say how proud I am for him being such a caring man.
posted by OkTwigs at 6:34 AM on January 26, 2017 [4 favorites]

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