New York Estate Planning Attorney Explains Reverse Mortgages and the Effect they may have on Your Estate
You have seen the commercials and heard the advice from financial planners. However, once you take out that reverse mortgage, what happens to your beneficiaries?
This is a critical question that anyone with, or those who may be considering, a reverse mortgage must ask. Not addressing this issue could leave your estate at risk, and your beneficiaries with nothing.
What is a Reverse Mortgage?
For those who do not know, a reverse mortgage is something offered to seniors. It is supposed to help seniors by converting equity in their homes into cash. There are no monthly payments, and seniors can keep their home as long as they still pay property taxes and homeowners’ insurance premiums. To qualify, an owner must be 62 or older. Most who consider reverse mortgages do so for unexpected medical costs or because they must supplement their current retirement income (or lack thereof).
The Impact of Reverse Mortgages
When a person passes away with a reverse mortgage on the property, beneficiaries may have their inheritance threatened by lenders ready to collect on the mortgage due. Reverse mortgages are paid upon death, or if the individual moves/sells the home.
Under the federal regulation, surviving family members are supposed to receive an option from the loan servicer, which allows them to settle the loan for a percentage of the entire amount due. However, reverse mortgage companies are not following this regulation.
Instead, mortgage companies are threatening to foreclose on the property unless beneficiaries settle the mortgage in full, with no partial or discounted payments available. Some mortgage servicers may even move to foreclosure just weeks after the testator’s death – long before the estate makes it to probate court.
If there is a shortfall with the percentage settled by the family members, then the mortgage company receives the remaining payment through the federal insurance program. However, lenders have been skipping the middleman and demanding all money upfront from surviving family members. They also rarely inform family members of their right to pay a percentage.
Also, federal regulation requires the mortgage company to allow up to 30 days for heirs to decide how they want to handle the family property. Then, they are required to provide six months for family members to obtain financing. Most importantly, heirs are only required to pay 95 percent of the fair market value of the home – not the balance due. Therefore, lenders must hire an appraiser and value the home before collecting.
Protecting Your Loved Ones from Reverse Mortgages
If you do have a reverse mortgage or intend to get one, speak with an estate planning attorney in Long Island. An attorney can draft an estate plan that protects beneficiaries from the tactics used by mortgage companies to collect.