Pitfalls of Reverse Mortgages May Pass to Borrower’s Heirs (moving, federal)
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
Ms. Santos, 61, along with a growing number of baby boomers, is confronting a bitter inheritance: The same loans that were supposed to help their elderly parents stay in their houses are now pushing their children out. "My dad had nothing when he came here from Cuba and worked so hard to buy this house," Ms. Santos said, her voice quivering.
Similar scenes are being played out throughout an aging America, where the children of elderly borrowers are learning that their parents' reverse mortgages are now threatening their own inheritances. Reverse mortgages, which allow homeowners 62 and older to borrow money against the value of their homes that need not be paid back until they move out or die, have long posed pitfalls for older borrowers.
We know the above is how Reverse Mortgages are suppose to play out. Are they always?
Quote:
Under federal rules, survivors are supposed to be offered the option to settle the loan for a percentage of the full amount. Instead, reverse mortgage companies are increasingly threatening to foreclose unless heirs pay the mortgages in full, according to interviews with more than four dozen housing counselors, state regulators and 25 families whose elderly parents took out reverse mortgages.
Some lenders are moving to foreclose just weeks after the borrower dies, many families say. The complaints are echoed by borrowers across the country, according to a review of federal and state court lawsuits against reverse mortgage lenders.
Good article with food for thought for anyone considering. Also for anyone wanting to stay up on.
I don't understand how the "pitfalls" are passing to the heirs. I'm surprised that the heirs are given an opportunity to buy the house. That seems fair to me and was surely spelled out in the original mortgage agreement.
It sounds like some children are not party to their parents financial arrangements and expect an inheritance that is already spent.
Ms. Santos should be proud that her parents were able to use the home to provide for themselves. Am I missing something?
The mention of this; "Under federal rules, survivors are supposed to be offered the option to settle the loan for a percentage of the full amount"
in the above is not something I could find substantiation for but would hope the writer did.
If it is so, and the author is aware of it, one would assume the practice is undergoing investigation and action against the banks doing so.
Other than that, I agree with boogie'smom .If one is going to take out a reverse, they must undergo counseling so that they are made aware of all aspects (even though I know how many people pay no attention) and it is something they do for themselves....not their heirs.
The mention of this; "Under federal rules, survivors are supposed to be offered the option to settle the loan for a percentage of the full amount"
in the above is not something I could find substantiation for but would hope the writer did.
If it is so, and the author is aware of it, one would assume the practice is undergoing investigation and action against the banks doing so.
Other than that, I agree with boogie'smom .If one is going to take out a reverse, they must undergo counseling so that they are made aware of all aspects (even though I know how many people pay no attention) and it is something they do for themselves....not their heirs.
They do, and understand that upon the death the mortgage needs to be paid off by the estate or their heirs. The issue is the Reverse Mortgage holder is bypassing that step and going right to declaring foreclosure and seizing the house.
From the OP link:
Quote:
Lenders must offer heirs up to 30 days from when the loan becomes due to determine what they want to do with the property, and up to six months to arrange financing. Most important, housing counselors say, is a rule that allows heirs to pay 95 percent of the current fair market value of the property — a price that is determined by an appraiser hired by the lenders. Mr. Bell of the National Reverse Mortgage Lenders Association said that lenders are strictly abiding by the 95 percent rule.
The following is from the link and all articles like this and this thread are efforts to inform the heirs of their rights. The heirs were not the ones who received the counseling and may not know what their rights are.
Quote:
The difference offered by the 95 percent rule can be critical. After the financial crisis, when housing prices tumbled, the disparity between the current value of the home and the total balance on the mortgage often means the difference between keeping a home and losing it to foreclosure.
When Robert Campbell's mother, Lillie, died in 2012, the outstanding loan balance was $123,773 — a sum that was impossible for him to pay. But, he could have cobbled together the $14,000, or 95 percent of the market value of the Chicago home when Ms. Campbell died. The only problem is that the lender never informed him of that option, according to his lawyer, Kathryn Liss. It wasn't until Mr. Campbell contacted the lawyer that he learned of an alternative. There are others like him.
"There are hundreds of families who want to keep their homes and are simply not aware of their rights," Jean Constantine-Davis, a senior lawyer for AARP, said.
Perhaps when considering the reverse mortgage and are going for the counseling folks might want to take their heirs with them.
You notice that phrase "up to 6 months"? It does not say they must give 6 months but that wording means they need not give longer than.
And I'm sure many think that 30 days is too short a period on time but it can be interpreted by some as "going right to declaring foreclosure".
The devil might be in the details.
You notice that phrase "up to 6 months"? It does not say they must give 6 months but that wording means they need not give longer than.
And I'm sure many think that 30 days is too short a period on time but it can be interpreted by some as "going right to declaring foreclosure".
The devil might be in the details.
Very true, unfortunately some of the foreclosures came within two weeks of the death and clearly under the 30 day time line to decide. Seems like it boils down to who should bear the burden of the housing crash and the fact that the balance of the loan far exceed the value of the now underwater house. Would seem our perspectives could vary considerably based on similar issues and questions in todays housing market. I can understand the mortgage holder wanting their money and not giving away dirt cheap an underwater house.
Quote:
Under federal rules, survivors are supposed to be offered the option to settle the loan for a percentage of the full amount. Instead, reverse mortgage companies are increasingly threatening to foreclose unless heirs pay the mortgages in full, according to interviews with more than four dozen housing counselors, state regulators and 25 families whose elderly parents took out reverse mortgages.
Some lenders are moving to foreclose just weeks after the borrower dies, many families say. The complaints are echoed by borrowers across the country, according to a review of federal and state court lawsuits against reverse mortgage lenders.
So the repayment to the lender would not occur until after the sale of the house or the heirs' buyout?
If not, how could one determine how long it would take to actually sell the home?? It could take a year or more.
My wife and I were both still working in state senior services and advocacy when reverse mortgages came into being. Neither of us was a big fan of them then and we certainly aren't now. However, we also understand that for those in or approaching dire financial circumstances they may end up being the only viable option. Under those circumstances, they certainly have their uses.
Thanks for posting this, Tuborg. What's interesting is that if presumed heirs get their noses out of joint over finding out that they may not receive an attractive inheritance, where were they when their parent(s) were experiencing tough times? Not worrying about whether or not you leave anything behind for others can be very freeing!
Quote:
Under federal rules, survivors are supposed to be offered the option to settle the loan for a percentage of the full amount. Instead, reverse mortgage companies are increasingly threatening to foreclose unless heirs pay the mortgages in full, according to interviews with more than four dozen housing counselors, state regulators and 25 families whose elderly parents took out reverse mortgages.
Some lenders are moving to foreclose just weeks after the borrower dies, many families say. The complaints are echoed by borrowers across the country, according to a review of federal and state court lawsuits against reverse mortgage lenders.
So the repayment to the lender would not occur until after the sale of the house or the heirs' buyout?
If not, how could one determine how long it would take to actually sell the home?? It could take a year or more.
I don't think the issue is selling the house but the heirs having the option to pay off the obligation ( which amount is part of the issue) by buying the house themselves. It may be the house they grew up in and just want to live in it now.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
