Who is REALLY responsible for reverse mortgage borrowers facing foreclosure

Reverse Mortgage FinancingStories about seniors losing their homes “because” of a reverse mortgage are hitting the media headlines.  They are painting the picture that the reverse mortgage is a bad option.  We recently received a call from a reverse mortgage borrower, not our borrower but from another lender, who is facing foreclosure.  We’ll call her Mary.

Mary called to see if we could help her.  She took her reverse mortgage out around 10 years ago, on a home valued at $200,000.  Through the years she benefitted form the reverse mortgage by using the proceeds for her needs and wants.

She got behind on her taxes by $20,000. This means she is at least 5 to 6 years behind on paying her taxes if her property taxes were around $3,000 to $4,000 a year, likely for her home value in Minnesota.

The terms of the reverse mortgage, as with any traditional mortgage, require borrowers to pay property taxes and insurance on their property.  Even if one doesn’t have a mortgage, it is the responsibility of homeowners to pay property taxes on their home.

In Mary’s case, as has often been the situation with reverse mortgages, the lender paid the back taxes and reached out to her to work with her to repay the amount they had paid on her behalf.

She said she can only pay $100 a month.  At this rate it would take her 200 months or 16 years to repay this.  And she still has to pay her current taxes.

The terms of reverse mortgages don’t allow for repayments for this length of time.  Therefore the lender is telling her she needs to bring her back taxes current or they need to foreclose.

As a homeowner, who pays your property taxes?  Even if your taxes and insurance are escrowed with your conventional mortgage, you are still paying the property taxes, just processed through the lender.  Paying property taxes are a responsibility of being a homeowner.

Think about reverse mortgageThink about getting behind on your property taxes…eventually the county will foreclose.  With the reverse mortgage, the lender paying the back taxes on the borrower’s behalf, and trying to work out a payment plan, could mean foreclosure doesn’t happen.  In any case the lender paying the back taxes on behalf of the borrower extends the time before foreclosure could happen.

If the borrower works out a payment plan, keeps to it and repays back taxes in a reasonable timeframe and keeps their taxes current, then the loan is not called due and payable.  However, if one isn’t able to find a reasonable payment plan and keep their taxes current, foreclosure will happen, whether by the county or by the lender.

And the reason for the foreclosure is the borrower did not pay their property taxes.  Not because they had a reverse mortgage.  They would be facing foreclosure even if there was no reverse mortgage.

Unfortunately as the conversation showed, Mary doesn’t understand this.  She and the others written about in the media don’t want to take responsibility for their home ownership requirements.  They want someone else to take responsibility or to blame someone else.

Mary doesn’t think it’s reasonable for her to have to pay the back taxes because she can’t afford to pay them.  Her statement was, “I only get $1,000 a month, I can’t afford to more than $100 a month towards taxes.”

When asked about her being behind on her taxes and understanding it is her responsibility to pay them she stated, “The taxes are paid current.”  Then when reiterated they were current because  the lender paid on her behalf she acknowledged “Yes, they paid them.”

However she justifies that it was okay for the lender to pay taxes on her behalf and she shouldn’t have to repay them saying, “Well, the government bailed out the big banks but they don’t bail out the little guy.”

So she doesn’t think the lender should be requiring her to pay the back taxes. Really? Who should be paying her taxes?

The loan agreement on the FHA insured reverse mortgage requires borrowers keep taxes current and insurance on the property.  Mary kept insisting, “They are current, the lender paid the back taxes,” ignoring that it is her responsibility, not the lenders to pay property taxes.

Sadly she didn’t have an answer when asked how she was going to pay her current taxes or going forward.

In summary of the conversation, Mary thought the bank should be eating her debt, covering her responsibility of paying taxes, and she shouldn’t be losing her home because she can’t afford to pay the taxes in the past or going forward.

Educated Reverse Mortgage BorrowersBorrowers should take time to be educated and understand the reverse mortgage, or any mortgage or financial product. With the reverse mortgage they are required to obtain 3rd party counseling where the counselor explains the product and the terms. The loan officer they are working with should also be explaining the features and terms of the reverse mortgage. Borrowers then get to decide whether they choose to proceed. It’s their decision and they should not blame a product they chose for their circumstances.

Starting in 2015, a Financial Assessment is required to determine reverse mortgage borrower’s ability and willingness to pay property taxes and insurance into the future. This consumer safeguard for borrowers, along with other new protections for spouses, help make reverse mortgages more sustainable for seniors who want to remain in their homes. This assessment does take into consideration the occasional life circumstance where one may have been late on a payment.

Blaming the reverse mortgage for one’s lack of taking responsibility of general home ownership duties is misplaced by the media and the homeowners.

2016 Beth Paterson, CRMP, Beth’s Reverse Mortgage Blog, 651-762-9648

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