Monthly Archives: May 2014

happy guy

Okay. You talked about it and now you have decided on taking out a “Reverse Mortgage” on your home. You don’t have to make a monthly mortgage payment?  You get cash from your home in monthly payments or lump sum cashout? It can even payoff your existing loan? I mean….how can you lose?

Many folk in their twilight years just do not have enough money saved for retirement. And Social Security? Pittance. So what are your options?  Sell your home and move into an assisted living  “community”?  Try to make ends meet and pray for a miracle?  Cat food?  Consider the Reverse Mortgage. But be careful. Hire an attorney or specialist to help you out. Contracts for Reverse Mortgage’s can be difficult and you want to make sure that you are not making a bad situation worse.

reverse mortgage

In most cases, Reverse Mortgages can be a great idea for helping with your finances in your retirement years. I have yet to hear complaints from anyone involved with a reverse mortgage. That is, unless that person is the heir to the property after their parents have passed. And therein lies the tricky part.

The deal was great for your parents, but now that you are looking forward to cashing in on your inheritance, it appears as though you may not get the house you were counting on.  After all, someone needs to pay for the loan that was taken. So what now?

Under federal rules, the heirs are supposed to be offered the option to settle the loan for a percentage of the full amount. This “settlement” is commonly known as the 95 percent rule. After someone has passed away, the heirs have 30 days to decide what they want to do with the house. If they wish to refinance the loan, they have six months to arrange for the financing. And, you may invoke the almighty……wait for it……95 percent rule! This “rule” allows you to pay 95 percent of the current fair market value of the property! (Any shortfall if the home sells for less than the debt is covered by a federal insurance fund, which all reverse mortgage borrowers are required to pay into each month). This could be a huge savings, especially if you took out the loan during a period of time when values were way up and later crashed.

reverse-mortgage-rules

But who determines the current value of the house? Why, the lenders of course. And even if they value the property accurately, in most cases the loan balance is substantially less than the value anyway.  So the 95 percent rule, while on it’s face sounds fantastic, may not be such a godsend after all.

And sometimes the lenders don’t always follow the “rules” and immediately after death, begin the process of foreclosing on the property. And, if you are not prepared, you will get lost in the bureaucracy and possible lose the home entirely. In fact there are several lawsuits pending from borrowers on just this issue. You must know your rights and be prepared. Hiring an attorney or specialist is always good advice. They may be costly, but consider the cost if you lose the home.

And if all else fails, and you do lose the home, certainly do not blame the parents! As strange as it may be, I hear a lot of complaining from people that their parents did this to them and now they do not have the house free and clear like they were hoping. Get over it! After all, bottom line, it was their house. They worked hard for it. Just be happy that they were able to stay in it, comfortably, until the end. And if it means that you did not get the house in the inheritance, so be it. Your parents were happy and comfortable. They deserved it.

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