People entering retirement age are now facing an unexpected hurdle – dealing with the pitfalls from their parents’ reverse mortgage. The same loans that were supposed to be helping their elderly parents stay in their homes are now pushing the children out of them. In fact, the same situation is playing out all across the United States, where the retirement age children of elderly borrowers are discovering that their parents’ reverse mortgages are now threatening their own inheritances.
Reverse Mortgage Schemes
A reverse mortgage is a financial tool that allows people age 62 and older to borrow money against the value of their homes. This money does not need to be paid back until they move out of the home or die. Unfortunately, many children of parents who invested in reverse mortgages are discovering the issues that arise with them.
Under federal law, survivors of a reverse mortgage are supposed to be given the option to settle the loan for a percentage of the full amount. Instead, reverse mortgage companies are now threatening the heirs with foreclosure on the homes unless they pay in full. In fact, some reverse mortgage lenders are foreclosing in a matter of weeks after the borrower dies, and it has led to a rash of lawsuits in state and federal courts against reverse mortgage lenders.
In other cases, the reverse mortgage lenders do not move to foreclose but instead plunge the heirs into a bureaucratic quagmire if they want details about how to save their family home. The lenders make it nearly impossible to figure out what the rules are in order to pay back the loan, and they wait for the heirs to either give up or run out of time. Another tactic is where lenders do offer the heirs a chance to pay a percentage of the value of the house, but since the time that the reverse mortgage was taken out the overall value of the house has increased.
An Increasing Problem
According to various elder care and estate planning leaders, reverse mortgage lending issues are on the rise in the United States. Tens of thousands of survivors of reverse mortgages are now attempting to beat the ploys of these lenders. Unfortunately, this problem will only increase over time as more Americans are reaching their elder years and are turning to their homes for money. The combined debt of those ages 64-73 is now higher than any other age group, and right now 13% of all reverse mortgages are underwater.
For heirs, the main issue is that few know about the set of reverse mortgage rules set forth in the Department of Housing and Urban Development. While the department vets reverse mortgage lenders, it does not provide a list of firms in violation of the rules or that have been penalized.
What Heirs Need to Know
According to the rules set forth by the Department of Housing and Urban Development the lenders of reverse mortgages must offer heirs up to thirty days to decide what they want to do with the property. Additionally, they must give up to six months to arrange financing. Most importantly, the rule states that heirs are allowed to pay only 95% of the current fair market value of the property. Hopefully, by making the rules and pitfalls of reverse mortgage lending public more parents and heirs can avoid the problems that come with them.