Why take a reverse mortgage? I am sure there are some advantages to pulling equity out of a home. Sometimes you have no choice because you’re cash strapped and need money to pay bills. But there are disadvantages when taking on a reverse mortgage, starting with high mortgage transfer fees, the cost of Private Mortgage Insurance, and higher than normal interest rates. Rates that are set in motion to intentionally chew up the remainder of your home’s equity, so when you and your spouse die there is nothing left in the form of equity, and the bank takes it all for a fish cake of what they’ve doled out to you in the form of a very insidious home equity loan. One that is designed to remove anyone who may be left in the home after the owner's demise, and ingeniously crafted to cheat all of your heirs out of their inheritance.
During the housing crash in 2008, I became a foreclosure specialist helping distressed homeowners save their homes through a state-mandated mediation process. It was a process that gave the homeowner a way to negotiate one on one with the lender with my counsel to secure a loan modification or reduce the original loan amount, in order to and reset the rate and term. I live in Nevada. Our state was hit hard during the housing crash. It was such a debacle that the government was so embarrassed they incentivized their buddies at the banks to make deals with homeowners and their agents. I was one of those agents who made lots of deals. More than a hundred of them. It was a dark time that I will not easily forget. People’s lives shattered, thrown into upheaval. So many of them saw their equity disappear and walked away from their properties without trying to work something out with the bank. Who could blame them? Las Vegas became a ghost town when all the foreclosures finally hit. People just picked up what they could carry in their cars and left their homes sitting vacant.
I was in the foreclosure business for about a year, when an older white-haired woman, walked into my office and told me the bank was threatening to foreclose on her home. She had no idea why. Her husband had died a year earlier, and she was certain, from the things that he told her, that when the house was paid off and remained in both of their names. This was not the case. Unbeknown to her, the husband, who was a degenerate gambler, took a reverse mortgage on the house. He conspired with the loan agent to take her name off the deed and keep him as the sole titleholder. He forged a whole new deed of trust behind her back to get the maximum equity out of the property. Why, because the older you are the more money you can pull out in equity. If you have six months to live, the bank is filled with understanding and patience. The wife was younger than he, so to extract more equity he got her off the title. If he had left her on the title it would have protected her after he died, but he didn’t. He was a scoundrel who left his own spouse out in the cold. Not long after the husband died the bank moved right in and began foreclosure procedures. I tried everything possible to negotiate a deal to keep her in that home, but I couldn’t help her. She did not have enough income to carry a monthly payment that would suit the value of the property no matter which way you sliced it. What I was able to do was buy time. I talked the bank into allowing her to stay in the house for six months until she found new accommodations. Once she moved out the bank sold the home at auction for half of what it was worth in 2006. That was my first experience with reverse mortgages.
This is how reverse mortgages work:
To obtain one you have to be 62 or older.
If you were thinking of leaving the home to your children, you probably can’t. Unless they can come up with enough money to pay off the balance on the new reverse mortgage loan which was used by the husband to suck out all the equity. If your children are well-heeled fine. Otherwise, you will all have to stand around and watch that house that you raised your kids in, get sold to an investor who could care less about any of your fond memories.
Another caveat: Whoever is named on the reverse mortgage must remain in the home until he or she dies. If both husband and wife are on the title the wife may remain in the home after the husband dies. In this case, the husband took his wife off the title, and when he died the bank came in to foreclose on the property. Even if he gets sick and goes into a nursing home and the wife is still living on the property but not on title, the bank can foreclose. That’s what happened to the woman in this story. She couldn’t repay the loan, and neither could her children. So, when the husband died, they looked and looked for any remaining money he pulled out inequity, but there was none to be found. The casinos owned it now. So, in comes the bank that gobbles the home up like a big white shark, because there is no money and no equity left to secure it. It was a big house, and the woman had her son and his friends from college living in the house. Because she was not on the loan documents, they all had to go find another place to live. Here’s my takeaway: If you're cash poor and are not bringing in enough income to carry what you owe, there are other options open to you before you ever think of turning to a reverse mortgage.
When you do a reverse mortgage, what happens is this: You relinquish all of your ownership rights. The only right you have left is called a Life Estate, which means you can live in the property until you die, as long as you keep up with the property taxes, and insurance, which is a whole other story that we can address in another thread. Don’t do it. It’s a bad idea from the beginning and comes tailor-fit for a bad end. If you are in a crunch think, about selling your home and downsizing to smaller to one that is more affordable. If you sell your home and receive a fair amount of equity, you may want to think about budgeting for a rental. Renting is less stressful than homeownership, especially after we reach a certain age. If you can rent, you may not have to worry about things like property taxes and expensive home repairs. Other options are home equity loans or securing what is called a home equity line of credit (HELOC) or refinancing with a traditional forward mortgage. Don’t put yourself in a position where you are not in control of your own living space. Whenever you take out a loan make sure you know what you are getting into. Take the paperwork to a friend who’s in the business, or a professional that knows home finance. Please make sure that all your ducks are in a row, and that you are covered safely and securely before signing anything with some salesman who is promising you the world and destroying your life all at the same time.
Comentários