I know you don’t tell your parents everything and guess what? They don’t tell you everything either. But I think it ‘s a good idea for someone that the senior knows and trusts to understand the reason the senior has taken the reverse mortgage and what happens when the loan comes due. The house belongs to the homeowners, not the kids, but when mom and dad pass away, it can be confusing and frustrating for the heirs if they have no idea what happened and are not prepared.
If they already have a reverse mortgage, they should not “deed” someone else onto title with them (like one of the kids). Technically it can be done - but it could be considered a default action on the reverse mortgage causing the loan to become due and payable.
Not to mention, you could really mess up title to the property. Preparing a deed is serious business, not one that should be done lightly. You should contact a real estate attorney to review the terms and condition of any liens or agreements currently affecting the property, to review and counsel you on the tax and estate ramifications of being added on title and to prepare the deed properly.
If your parents have a reverse mortgage ask them if they are both on the loan. If not you need to have a plan because once the last remaining “borrower” passes away, the loan will become due and payable, will the younger spouse have the funds to repay the loan? Perhaps they have a plan already in place, maybe she has a large life insurance policy on the old guy. That would be great.
Sometimes the younger spouse will have gone “off of title” in order for the older spouse to get a higher loan amount. In the situation I came across today, they did just that and if they hadn’t they would not have gotten enough money from the reverse to payoff their subprime, adjustable, negatively amortizing loan that they couldn’t afford. It would have been worth it for the family and everyone’s peace of mind to come up with another solution at the time they were taking the reverse mortgage.
Possible alternative solutions:
1. Instead of taking out a reverse - sell the home and move to a more affordable apartment. The market was much better then and they could have gotten a lot more on their home.
2. If the children wanted to keep the home in the family, perhaps they could have purchased it from the parents and then rented it back to them.
3. Take the reverse in both spouses names since the younger spouse was over 62 and when the loan proceeds were not sufficient to payoff the existing mortgage - the family members could have gifted the shortage amount to the senior couple. This way either spouse could have remained in the home without the loan becoming due and payable at the death of the other.
I think reverse mortgages are a wonderful financial tool for seniors who want to age in place in a suitable home. I don’t think they are for everyone, but I do think everyone should know and understand them.
By Deborah Nance
Your Local Southern California Reverse Mortgage Professional
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iReverse Home Loans, LLC, NMLS#810502 originates reverse mortgages in Alabama, Alaska, Arizona (MB-0919584), California, Colorado, Connecticut, Florida, Illinois, Indiana, Iowa, Kansas, Louisiana, Maryland, Massachusetts, Minnesota, Mississippi, Missouri, Nevada, New Jersey, New Mexico, Ohio, Oregon (ML-5378), Pennsylvania, South Dakota, Tennessee, Texas, Utah, Vermont (1164-MB), Virginia, Washington and Wisconsin.
Important Information: Reverse Mortgages are neither "endorsed" nor "approved" by the Federal Government. The FHA (Federal Housing Administration) provides certain insurance benefits for lenders and borrowers in connection with the lender’s HECM loans; the FHA does not make or originate loans. The owner(s) retain title to the property that is the subject of the reverse mortgage until the person sells or transfers the property and is therefore responsible for paying property taxes, insurance, maintenance and related taxes. Failing to pay these amounts or failure to maintain the condition of your property may cause the reverse mortgage loan to become due immediately. A reverse mortgage is a complex loan secured by your home. Whether such mortgage makes sense for you depends on your financial situation and needs. For these reasons, we strongly recommend that you consult with a qualified independent housing counselor, family members and other trusted advisers before making this decision. This website is not from HUD or FHA and was not approved by HUD or any government agency.