Jan 10, 2018
A reverse mortgage is a method that allows a senior (over age 62) homeowner who has paid off most of the mortgage for their primary residence to borrow against their home equity. The homeowner must still pay taxes and main insurance and repairs on the property and must live in the property.
Basically, a reverse mortgage allows a homeowner to obtain cash for the equity in their home using one of three options:
While the terms of the reverse mortgage vary with the lender, the homeowner can typically use the funds for any purpose. Once obtained, a reverse mortgage typically stays in effect until: a) All borrowers have died; b) The property is sold or transferred; c) The borrower fails to live in the property for a period longer than 12 months; or d) The borrower fails to maintain, pay taxes on, or insure the home according to FHA requirements.
The homeowner still retains title to the property, although the title has a lien against it. The property is still owned by the borrower and can be left as part of the estate.
If the borrower sells the property, just like any other sale, he or she pays the lender from the proceeds. In the event the property sells for less than what is owed, the borrower pays any difference.
Should the borrower have to move from the property for a period longer than 12 months, typically a nursing home or long term care facility, this violates the terms of the loan and the lender can take action, including foreclosure.
A reverse mortgage can be an estate planning tool. It can allow a senior to stay independent and to remain in their home. However, when considering a reverse mortgage, the the borrower should plan for what happens upon their death.
The homeowner can still leave the property to his or her beneficiaries or heirs upon death. A valid will distributes the property through probate. If there is no will, the property follows the Texas inheritance rules.
Although it is not all that different than leaving your heirs a home with any type of mortgage, a reverse mortgage presents additional challenges for those left behind. You can help to protect you heirs by obtaining a non-recourse mortgage.
If you inherited a property with a reverse mortgage, contact a qualified probate attorney immediately. The attorney can work with you and the lender to make arrangements to either pay off the loan independently or to sell the property and pay off the loan. Remember, if the beneficiaries or heirs cannot pay off the loan, the lender can, and will, take action.
It is very important that everyone have an estate plan in place. Consider all of your options when preparing your estate planning documents. If you contact our office and begin the process between before February 15, 2018, you will get 20% off of an estate planning package.
Bob Leonard Law Group, PLLC
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