Reverse Mortgage Borrowers Have Responsibilities Or They’ll Pay the Consequences

Signing Reverse Mortgage ApplicationWhen loan documents are signed at closing, borrowers agree to the terms of the loan, whether a conventional loan for refinance or purchase; a home equity line of credit (HELOC); or a Home Equity Conversion Mortgage (HECM), the reverse mortgage insured by HUD; or a proprietary (private) reverse mortgage.  As with any home loan, with the reverse mortgage borrowers are using the equity in their home and the title of the home remains in the borrower’s name; the lender is using the home for collateral.  With any mortgage, conventional or reverse, the bank does not own the home, nor do they want t.

The reverse mortgage has helped seniors 62 and older remain in their home with their security, independence, dignity and control but not without responsibilities to adhere to the terms of the loan.  The main responsibilities are to not violate terms of the loan, generally these include:

  • Paying property taxes
  • Keeping hazard insurance on the property
  • Maintaining the property
  • Paying association dues if applicable
  • Not changing/transferring the title

Paying property taxes means keeping up with the county property taxes, paying them on time.  If one doesn’t pay property taxes, with or without a loan, the county could start tax forfeiture or foreclosure.

Keeping hazard insurance on the property helps protect the homeowner, with or without a mortgage.  If one doesn’t have insurance on their property and a storm comes along and damages the home they wouldn’t have funds to repair or rebuild the home.  With a mortgage (reverse or traditional) on the home, lenders require hazard insurance be kept on the property to protect the homeowner and lender if there is any damage to the property.  Being the lenders are invested in the property by lending money based on the home equity, they require the insurance so their investment is protected if there is damage.  For example if a tree falls on the home and damages the roof, the hazard insurance will cover the replacement of the roof and bring the home back to the condition required for lender’s investment.

Maintaining the property is required to protect the lender’s investment in the property and includes keeping the home in good condition including not letting the property become run down.  Keeping the roof in good repair, insuring the siding and trim do not have chipped or bare wood but are protected against the elements.  Ensuring against safety issues such as automatic garage doors will rise if something is under them, railings are in place and stable on stairs and decks rotten boards are replaced.  Interior maintenance is also important, for example having heating, electricity, plumbing, water in working order as well as safety issues such as railings on stairs.

If one is in a condo or town home and association dues are required, loans require that the association dues are kept current.  If they are not kept current then the association has the right to force the homeowner from the property.

What are the consequences if the requirements of the reverse mortgage loan terms are not abided by? If terms of the loan agreement are not followed, the lenders have the right to call the loan due and payable or foreclose.

Changing or transferring titles may mean the loan becomes due and payable.  For example if one decides to add a person to the title of the property (depending on who the person is), implement a Life Estate, or sell the property this may change who the lender’s have invested their interests.  If the property is going to be put in a trust it will not mean the loan will be come due and payable however the lender will need to review the trust to ensure that it meets the requirements of their investors and in the case of the HUD insured HECM, the trust must meet HUD’s guidelines.  Check with your lender before making any changes to the title to make sure it won’t impact your loan.

The area that has caused the biggest problem is when borrowers don’t pay their the property taxes and hazard insurance.  Therefore, FHA, the arm of Housing and Urban Development (HUD) who insures the majority of reverse mortgages, will soon require a Financial Assessment to stabilize the HECM and determine borrowers’ ability and willingness (based on payment & debt history) to pay property taxes and insurance.

With conventional mortgages, if taxes and insurance are not paid, the lenders will start an escrow account, requiring more money from borrowers in their monthly payments for the escrow account.  The lenders then make the tax and insurance payments on behalf of the borrower from their escrow accounts.

With the implementation of the Financial Assessment depending on borrower’s income, assets and debt history, for some a partial or full set aside will be created to pay the homeowners property taxes and insurance into the future.  Others won’t have to have a set aside created if there is a positive history of payments of taxes, debts, hazard insurance and income and disposable assets document their ability to pay taxes and insurance in the future.  Credit scores will still not be utilized to determine qualifying nor impact the interest rate.  (The Financial Assessment is a requirement as of April 2015.)

After the HECM is in place if borrowers do not have the capacity to pay the taxes and insurances they owe, the servicer will be forced to foreclose on the property per HUD’s requirements.  (Note that reverse mortgage lenders and servicing companies are required to abide by HUD’s requirements.)

Having reverse mortgage terms and responsibilities explained

Having reverse mortgage terms and responsibilities explained

While the originators, counselors and loan documents spell out these requirements, borrowers must take their responsibilities seriously.  It is also their responsibility to be sure to look at their budget and have a plan to be able to pay their property taxes, hazard insurance as well as maintaining the property.  Then they can remain in their home and enjoy the many benefits of the reverse mortgage.

Originally posted in 2010, updated 2015.

© 2010-2015 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety without modifications and includes the contact information, copyright information and the following link:

Related articles on Reverse Mortgages in Minnesota:

Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency. - The internets fastest growing blog directory

Food For Thought to Fulfill Key Roles of Social Workers

Food For Thought For Social Work MonthDuring March we recognize and honor Social Workers for the value they bring to our seniors.

In a variety of roles, with their knowledge and experience in providing resources, social workers assist our seniors. Social Workers are inspiring to improve lives and assisting with problem solving as well as resolving issues that may negatively impact the community. I’d like to offer some food for thought to fulfill their key roles.

Over ninety percent of seniors want to remain in their home. They are comfortable living in the home and community with their memories where they raised their children, know the neighbors, are familiar with the grocery store and the pharmacy. They feel safe and warm in their familiar surroundings. With the home as their identity it gives them comfort being in their long time home. So let’s talk about a couple ways to help fulfill the desires of seniors, improve their lives and help them stay in their home and their community.

Home care services are an option to help seniors who need some assistance to remain in their home. Everything from short time-frames to 24 hour care, including recovery care and respite care or even nursing level of care is available. Home care services can help seniors live at home indefinitely. The one-to-one ratio of care versus 1.5 or more of care per person in a nursing home offers safety.

Their services offer:

  • Companionship and socialization – home care aides can watch TV with them, play cards, do their hobbies, take seniors to the movies or watch them at home, shopping, or even travel with them.
  • Ensuring meals are prepared and eaten even providing someone to talk with during the meal
  • Medication reminders
  • Bathing, housekeeping, running errands
  • Escorting to appointments
  • Anything needed to maintain their life in their home

An assumption is often that one needs to move to assisted living, a nursing home or care center. What is not realized is that rent in assisted living can be $3,000 to $4,000 per month. Additionally home care services are added on to the rent bringing the monthly costs to over $5,000 to $8,000. Nursing home care can run $6,000 to $12,000 a month depending on a single or double room, the facility amenities and level of care.

Wondering how to pay for home care and keep the seniors in their home? A reverse mortgage may be the solution. A reverse mortgage is a home equity loan with special terms for senior homeowners 62 and older. Reverse mortgage facts are:

  • Borrowers own home, no one else does.
  • Seniors can stay in their home as long as it’s their primary residence (in the case of a couple as long as one is still in the home).
  • Borrowers won’t lose their home because of a reverse mortgage if they abide by the terms of the loan – they don’t have to make monthly mortgage payments but do need to pay property taxes, hazard insurance and maintain the property or they may face foreclosure.
  • Funds are generally not considered income for tax purposes.
  • Loan is government insured and guaranteed to be there for them.
  • There is no personal liability to them or their heirs when the loan is repaid, as a non-recourse loan the loan is repaid from the property only.
  • They or their heirs get to keep any remaining equity after the loan is paid off if the home is sold for more than the loan balance.

Consider this…

  • They can access more funds if their mortgage is currently paid off or has a low balance.
  • Their cash flow improves when their current mortgage or lien payment is eliminated.
  • They’ll have extra cash for whatever they need or want!
  • They can still receive Medical Assistance, Elderly Waiver or other public benefits and do a reverse mortgage.

I have often heard how seniors and their families have benefited from using a reverse mortgage to pay for home care. “Once we realized that we could only relieve the stress on us by contracting 24-hour [at home] nursing care for grandma, a reverse mortgage was the only way to do it.” Liz wrote me. Another borrower, Robert, did not want to go to a nursing home, yet he needed long term care. George, Robert’s son, decided they should do a reverse mortgage to pay for the home health care needed to keep Robert at home where he had raised his children. Robert is happy because he is living where he chooses. George is happy the family can fulfill Robert’s wishes of staying in his home and still receive the needed care.

Ruth had ALS and wanted to stay in her home until she passed.  Working with her Social Worker and home care company she did a reverse mortgage. Last week I received a call from her daughter telling me her mom had passed away in her home as she desired.  The reverse mortgage had helped her fulfill the dream of her staying in her home and receiving the 24-hour care she needed.

Giving seniors the freedom to stay in their home fulfills their desires of remaining in their home close to their memories and familiar surroundings. Social Workers offering home care and reverse mortgage options fulfill the Social Workers role of inspiring to improve lives, assisting with problem solving and resolving issues as well as having a positive impact on the community.
Happy Social Work Month to all our social workers!

Originally posted in 2010, Updated 2015
© 2010-2015 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety without modifications and includes the contact information, copyright information and the following link:

Related Articles:

Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.