We have all seen the commercials. An attractive older man or woman explains a
“magical” financial tool that helps senior citizens receive money they need for long-term care while remaining in their own home. The tool is known as a “reverse mortgage,” and it allows a homeowner to borrow money against the home’s value that does not need to be repaid until the senior moves or dies. It is only available to those over 62 and marketed as a helpful device for seniors in need of immediate funds.
However, as more and more seniors and their families are discovering, the reverse mortgage comes with many pitfalls that may cause far more harm than good. It is critical not take out one of these mortgages without knowing how it will affect your long-term plan and potential heirs.
A growing problem involves the aggressive tactics that lenders may use following a senior’s death in order to recover funds. Adult children are frequently mired in bitter feuds with companies to pay back the loan while trying to keep the family home and avoiding foreclosure.
As a New York Times story mentioned last week, there are growing concerns that lenders are not abiding by federal regulations when dealing with heirs during the collection process. Under federal law, these lenders are required to offer survivors two options to re-pay–either the total amount owed on the loan, or 95% of the current home value. Depending on the housing market, the home value option may be far lower than the outstanding loan amount.
Lenders are required to give families a month to determine how they would like to cover the obligation. Families must also be given up to six months to arrange for financing. Yet, there are countless stories of adult children receiving foreclosure notices within days of their parents passing. Some lenders are acting aggressively in collections, not giving borrowers time to properly learn about their options and make prudent choices.
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If it seems too good to be true, it probably is. Financial decisions should never been made quickly or based on overly optimistic promises from any one provider. Unfortunately, some businesses are willing to exploit the confusion and fear that surround so many of these issues in order to increase profits.
Elder law estate planning attorneys are bound by professionals rules to act only in the best interest of their clients. Do not make critical decisions about retirement planning, inheritance, or similar matters without consulting a professional who you know is looking out solely for your best interests.