Reverse Mortgage vs Chapter 7 & Foreclosure

[ld2366eh]

My mother in law is working part time and having a hard time paying her mortgage. She owes about $83K and the house might be worth $130K (I doubt this number - the house needs ALOT of work.) Anyway, she is contemplating doing a reverse mortgage. Does anyone know anything about these? She lives in PA. As a side note, she has about $12K in credit card debt as well. I don't think she really wants to stay in the house. Maintenance is expensive, but I think she feels she has no other choice. She is near retirement age and won't be able to work for much longer. Should she look at filing Chapter 7 and allowing the house to foreclose as a viable alternative to this reverse mortgage option? Please anyone out there, let me have your thoughts! BK 7 has been a Godsend to us, but we are in Illinois. I'm not sure how things work in PA...

[mlsj2009]

My guess is she may not qualify for a reverse mortgage. If she hasn't reached retirement age yet, say 66, she probably doesn't have enough equity in the home to get the RM if she still owes $83K. I am currently getting one and barely qualify and I am 66. We have a similar situation. If she can get it, it will be like giving herself a raise for the time she has left on house payments. She still has to pay insurance and taxes but they are cheap compared to principal and interest. In some cases, a RM can be a Godsend for the elderly. Many are doing just what she is doing to stay out of debt. If you have enough equity in the home, you get tax free cash for the difference that you can spend as you see fit. That means if she had enough equity in the home, she might get enough to pay off her credit card debts and then no house payments. A RM is not a burden on relatives or an inheritance either. So, it depends on what her true equity is and should be carefully looked into.

My mother in law is working part time and having a hard time paying her mortgage. She owes about $83K and the house might be worth $130K (I doubt this number - the house needs ALOT of work.) Anyway, she is contemplating doing a reverse mortgage. Does anyone know anything about these? She lives in PA. As a side note, she has about $12K in credit card debt as well. I don't think she really wants to stay in the house. Maintenance is expensive, but I think she feels she has no other choice. She is near retirement age and won't be able to work for much longer. Should she look at filing Chapter 7 and allowing the house to foreclose as a viable alternative to this reverse mortgage option? Please anyone out there, let me have your thoughts! BK 7 has been a Godsend to us, but we are in Illinois. I'm not sure how things work in PA...

[LadyInTheRed]

Has your mother talked to a realtor about what she might be able to sell the house for? If she doesn't want to stay in her house anyway, selling might be a better option.

[tobee43]

also, this may be helpful. although, i have no first hand knowledge of having one, you may find this interesting to read.

"The Hidden Truths About Reverse Mortgages


The ads make them look so great. Vacations, living a great lifestyle, happy couples, smiling at their good fortune. Rewards are repeated again and again.

Sincere movie stars of a certain age make the commercials believable. You can get cash now. It’s so easy. Just get your reverse mortgage and your problems will be solved. Pay off debt. Have fun.


What’s wrong with this picture?

A reverse mortgage is more debt and one of the most expensive forms of credit you can get.

At the San Francisco 7th Annual Conference on Elder Abuse, a panel spoke on this subject, drawing back the curtain that cloaks the truth: reverse mortgages are not for just anyone and they can create some new problems the broker isn’t telling you about. My husband, psychologist, Dr. Mikol Davis and I attended the conference and we learned about some serious problems.

Here are a few of the issues the panelists discussed.

The risks and dangers of reverse mortgages:

The Elder Might Need A Care Home in the Future
If you incur the debt of a reverse mortgage, or your aging parents do, it’s ok as long as they can live in that home. What happens when they have to move out of the home into assisted living or a nursing home? The mortgage becomes due. Now, there is the expense of paying it off, besides the high cost of the assisted living or nursing home care. It can leave an elder homeless.

It Can Affect Any Dependent in the Home

If the elder who needs care in a facility has non-borrowing family members in that home, the loan is still due. Anyone left in the home must move out, go to a care facility or be taken in by someone else. Those displaced if a borrowing elder has to go to a care facility can include a non-borrowing spouse, child or grandchild. They are “tenants” according the the rules of reverse mortgages and they have to leave when the elder does.

It Can Go Into Default
If an elder with a reverse mortgage fails to pay property taxes, to keep up insurance on the home, or fails to maintain the home, he is in default. The lender can then foreclose. Lenders are in a good position to purchase such properties cheaply and then flip them for a good profit. Elders who are low on cash may fail to pay home insurance premiums or property taxes. If they are getting forgetful, they might not maintain their properties.

When the Elder Dies, the Heirs Must Pay Off the Loan

The entire principal, plus accrued interest and service fees must be paid in full to the lender before the heirs can rightfully take possession of the home. This debt may exceed the actual market value of the home. If they can’t pay the debt, the lender has the right to foreclose and sell the property. Low wealth heirs are not likely to be able to pay the debt and those homes fall into foreclosure. Goodbye inheritance.

The Amount the Lender Will Loan is Limited

There are seemingly irrational formulas used to calculate how much a borrower can get on a reverse mortgage. If an elder lives into one’s 90′s, becoming more common these days, there is a risk that the amount loaned will not be enough to sustain the elder who needs long term care at home. The elder can run out of money to make the loan payments, go into default and end up homeless and impoverished. This is a real risk, particularly for anyone who thinks it’s a dandy idea to take out a reverse mortgage to pay for home care providers. If the elder borrows, say, $200,000, and ends up needing care 24/7, that reverse mortgage cash she got will be exhausted in about two years or less. Then what? Default, foreclosure and Medicaid paid nursing home.

According to Norma Paz Garcia, Senior Attorney for Consumer’s Union of the United States, there is no suitability standard for reverse mortgages for seniors. We need standards. She warns that all seniors need truthful counseling to warn of the negative consequences and potential harm of reverse mortgage products. She urges borrowers to consider any other possible alternatives to raising cash such as a forward mortgage equity lines, inter-family loans, local government loans or public benefits.

So what’s the bottom line? Consider a reverse mortgage an option of last resort. If you or your aging parent gets charmed by the TV ads, get advice from a competent financial planner and elder law attorney before doing anything. Recognize that your aging loved one might not be in perfect health to the end of her days and that care at home might cost more than a reverse mortgage could cover, especially over a period of years. There just might be less costly, smarter ways to deal with the need for money when funds run low."

http://www.forbes.com/sites/carolynr...rse-mortgages/

[ld2366eh]

Not knowing much about these reverse mortgages does scare me. She is over 65 and barely qualifies. They basically told her the house needed to be worth 135 to make this work. She would have to pay for the appraisal - 300 up front and it's out the door if it comes in lower than 135. The house needs a lot of ongoing maintenance. I personally think she should get out from under it. Problem is it's in such disrepair, I don't know if she could sell it. Does anyone have any advice on who she could speak with? She doesn't have the money for a financial advisor. The most I can guide her in is file bk and let the house go. I'm not sure that is the right decision for her.?. I do know that she is on Medicare but has no supplimental policy, and her health is not the best. At the minimum, I think she needs to be able to afford a supplimental policy to suppliment her medicare. Right now, I'm going to tell her that she should have a realtor come in and tell her what her house is worth in today's market. Is that a good starting point? Thank you all for your great advice and shared experiences!

[mlsj2009]

There are no "Hidden Truths" if you just research and read. Here is a better site than the gossip from the forum: http://portal.hud.gov/hudportal/HUD?.../hecm/hecmhome

Yes, Reverse Mortgages are not for every senior but they are for many, including me. There are private companies that try to scam the public. Go figure!
Maybe the forum group was talking about them. You have to be counseled to get a GRM. These are non-recourse loans and insured. They have low interest rates like any mortgage loan. Mine was 4.5%. You do not have to pay them back, you can walk, you have up to a year to sell the property if anything happens to you like going to a rest home, and your relatives ARE NOT responsible for the debt.

Most of what is written in the article you listed below is crap. Here are some things that are crap about this article:
1. When they move or get nursing care. answer: you have up to a year to sell the house and move. Your family can do it for you if you have to go to a nursing home. You can clean the house out and receive any equity left in the home.

2. It can effect any dependent left in the home. Yes. any tragedy like being put in a nursing home will effect a dependent. You and family have a year to deal with the problem.

3. It can go into default. If you don't make taxes or insurance, possible, but again, these are non-recourse loans and the taxes go with the property if you have to default. You can default by not making payments whether or not you have a GRM. So, what is the point here?

4. When the Elder Dies, the heir must pay of the mortgage. Very misleading at best and downright lie at worse. Your heirs are not responsible for the debt, but like any secured loan, the debt must be satisfied when the house is sold. Your heirs have one year to empty the house and sell it for what it is worth. They ARE NOT responsible for any deficiencies.

5. The amount the Lender will lend is limited. Yes, they are in business to make money. So, you get a % of the value of the home. The GRM is not for everyone, but it does work well for seniors who need it to make ends meet because of the mortgage payments. Poor argument at best.

6. There is not stability standard. Outright lie. Government Reverse Mortgages have laws and standards that must be lived by or you can pay fines and/or go to jail.


My guess is that this forum was sponsored by mortgage companies who want seniors to be at their mercy.

Hope this helps.

also, this may be helpful. although, i have no first hand knowledge of having one, you may find this interesting to read.

"The Hidden Truths About Reverse Mortgages


The ads make them look so great. Vacations, living a great lifestyle, happy couples, smiling at their good fortune. Rewards are repeated again and again.

Sincere movie stars of a certain age make the commercials believable. You can get cash now. It’s so easy. Just get your reverse mortgage and your problems will be solved. Pay off debt. Have fun.


What’s wrong with this picture?

A reverse mortgage is more debt and one of the most expensive forms of credit you can get.

At the San Francisco 7th Annual Conference on Elder Abuse, a panel spoke on this subject, drawing back the curtain that cloaks the truth: reverse mortgages are not for just anyone and they can create some new problems the broker isn’t telling you about. My husband, psychologist, Dr. Mikol Davis and I attended the conference and we learned about some serious problems.

Here are a few of the issues the panelists discussed.

The risks and dangers of reverse mortgages:

The Elder Might Need A Care Home in the Future
If you incur the debt of a reverse mortgage, or your aging parents do, it’s ok as long as they can live in that home. What happens when they have to move out of the home into assisted living or a nursing home? The mortgage becomes due. Now, there is the expense of paying it off, besides the high cost of the assisted living or nursing home care. It can leave an elder homeless.

It Can Affect Any Dependent in the Home

If the elder who needs care in a facility has non-borrowing family members in that home, the loan is still due. Anyone left in the home must move out, go to a care facility or be taken in by someone else. Those displaced if a borrowing elder has to go to a care facility can include a non-borrowing spouse, child or grandchild. They are “tenants” according the the rules of reverse mortgages and they have to leave when the elder does.

It Can Go Into Default
If an elder with a reverse mortgage fails to pay property taxes, to keep up insurance on the home, or fails to maintain the home, he is in default. The lender can then foreclose. Lenders are in a good position to purchase such properties cheaply and then flip them for a good profit. Elders who are low on cash may fail to pay home insurance premiums or property taxes. If they are getting forgetful, they might not maintain their properties.

When the Elder Dies, the Heirs Must Pay Off the Loan

The entire principal, plus accrued interest and service fees must be paid in full to the lender before the heirs can rightfully take possession of the home. This debt may exceed the actual market value of the home. If they can’t pay the debt, the lender has the right to foreclose and sell the property. Low wealth heirs are not likely to be able to pay the debt and those homes fall into foreclosure. Goodbye inheritance.

The Amount the Lender Will Loan is Limited

There are seemingly irrational formulas used to calculate how much a borrower can get on a reverse mortgage. If an elder lives into one’s 90′s, becoming more common these days, there is a risk that the amount loaned will not be enough to sustain the elder who needs long term care at home. The elder can run out of money to make the loan payments, go into default and end up homeless and impoverished. This is a real risk, particularly for anyone who thinks it’s a dandy idea to take out a reverse mortgage to pay for home care providers. If the elder borrows, say, $200,000, and ends up needing care 24/7, that reverse mortgage cash she got will be exhausted in about two years or less. Then what? Default, foreclosure and Medicaid paid nursing home.

According to Norma Paz Garcia, Senior Attorney for Consumer’s Union of the United States, there is no suitability standard for reverse mortgages for seniors. We need standards. She warns that all seniors need truthful counseling to warn of the negative consequences and potential harm of reverse mortgage products. She urges borrowers to consider any other possible alternatives to raising cash such as a forward mortgage equity lines, inter-family loans, local government loans or public benefits.

So what’s the bottom line? Consider a reverse mortgage an option of last resort. If you or your aging parent gets charmed by the TV ads, get advice from a competent financial planner and elder law attorney before doing anything. Recognize that your aging loved one might not be in perfect health to the end of her days and that care at home might cost more than a reverse mortgage could cover, especially over a period of years. There just might be less costly, smarter ways to deal with the need for money when funds run low."

http://www.forbes.com/sites/carolynr...rse-mortgages/

[mlsj2009]

By the way, I might add that since these GRMs are insured and non-recourse, you can sell the house at market value or walk with no financial ramifications. That is in your contract. The lender doesn't lose because the government guarantees the loan. The government doesn't lose because you pay for insurance up front that guarantees no loss for them. The insurance company does not lose because they use expert actuaries that the amount is determined how much the lender can loan, and guess what, insurance companies don't lose much money. It is a win-win-win-win for everyone. It is a win for the senior IF they really need the loan. It is a win for lender because they make money on these things. It is a win for the government because they have done their job, and it is a win for the insurance company because they also make money. Go figure!

Also, I might add, it is a win for your family and heirs because you have taken care of your own business and not become a burden. You have a place to live with no mortgage payments until you can no longer live there, and you family and heirs get to clean out the house and not be responsible for any debts. If there is equity left in the home after the sell, the heirs get it. You get it if you decide to move and sell. Like any secured loan, you have to pay it off upon sell. You get what is left, just like when you sell your mortgaged home.

[tobee43]

There are no "Hidden Truths" if you just research and read. Here is a better site than the gossip from the forum: http://portal.hud.gov/hudportal/HUD?.../hecm/hecmhome

Yes, Reverse Mortgages are not for every senior but they are for many, including me. There are private companies that try to scam the public. Go figure!
Maybe the forum group was talking about them. You have to be counseled to get a GRM. These are non-recourse loans and insured. They have low interest rates like any mortgage loan. Mine was 4.5%. You do not have to pay them back, you can walk, you have up to a year to sell the property if anything happens to you like going to a rest home, and your relatives ARE NOT responsible for the debt.

Most of what is written in the article you listed below is crap. Here are some things that are crap about this article:
1. When they move or get nursing care. answer: you have up to a year to sell the house and move. Your family can do it for you if you have to go to a nursing home. You can clean the house out and receive any equity left in the home.

2. It can effect any dependent left in the home. Yes. any tragedy like being put in a nursing home will effect a dependent. You and family have a year to deal with the problem.

3. It can go into default. If you don't make taxes or insurance, possible, but again, these are non-recourse loans and the taxes go with the property if you have to default. You can default by not making payments whether or not you have a GRM. So, what is the point here?

4. When the Elder Dies, the heir must pay of the mortgage. Very misleading at best and downright lie at worse. Your heirs are not responsible for the debt, but like any secured loan, the debt must be satisfied when the house is sold. Your heirs have one year to empty the house and sell it for what it is worth. They ARE NOT responsible for any deficiencies.

5. The amount the Lender will lend is limited. Yes, they are in business to make money. So, you get a % of the value of the home. The GRM is not for everyone, but it does work well for seniors who need it to make ends meet because of the mortgage payments. Poor argument at best.

6. There is not stability standard. Outright lie. Government Reverse Mortgages have laws and standards that must be lived by or you can pay fines and/or go to jail.


My guess is that this forum was sponsored by mortgage companies who want seniors to be at their mercy.

Hope this helps.

i have heard of more scams than i have litgit companies. i'm certain there are out there, i do not consider this as gossip, it is to inform the OP of some of the dangers and while your situation may work well for you, people need to fully understand this could be trouble for one so tight in their budget. even your list certainly does not qualify them an alternative for many without understanding the negative outcomes or possibilities as a result of taking on out on ones house.

of course the OCC has laws they have them for all the banks period. we have all seen how the laws apply to lenders. what with a few million in fines after they have ripped people off of millions of dollars and more from so many. these laws are rarely enforced, and if they are, they are a drop in the bucket for the lenders. while your experience may be good, that's great, but i have heard more bad then good. my posts are not made up of gossip.

My guess is that this forum was sponsored by mortgage companies who want seniors to be at their mercy.

as far from the truth as you can be. i suggest you can guess all you like, but you are so off the mark. but it made me laugh.

[mlsj2009]

If you would have bothered to go to my site that I listed, you would have found out it is the official government site for reverse mortgages. It is as LEGITIMATE as it gets. Any company using a government backed RM is Legit. End of story, unless of course, you are some type of government conspiracy theorist.

The article might apply to private companies who are doing reverse mortgages, but being tight on your budget is exactly why my wife and I are doing a reverse mortgage. We cannot retire otherwise. These horror stories and scare tactics are somewhat disgraceful, to me. The columnist went to a forum of supposed experts in which she didn't really name and give their expert credentials and then commented on the results. We have her personal word that there is a problem, and she insinuates that there must be something wrong with ALL reverse mortgages. Please prove there are more scams than legit companies. Just because you say it is so, hardly makes it so. I challenge you.

Yes, there can be negatives. That is why the government insists you go through a government sponsored counseling session and certified as doing such before they will allow you the loan. They answer all these questions that this forum is raising. I know, my wife and I went through the counseling session with the government representative. He made sure we understood what we were getting into as seniors.

You seem to be making this personal, Tobee. If you took anything personal from my comments, I didn't mean it that way. I didn't like the article and think it does not do justice to the situation the original blogger posted. That was a son in law who feels he has something to lose if it doesn't go his way. Sorry, but the mother-in-law needs to thoroughly research the possibilities. I would suggest she only stick with government backed RMs, though.

As to my remark about the supposed experts credentials and where this article has derived, my guess is as good as the next, unless you can prove otherwise. If you do, then I stand corrected, something i am willing to be. Otherwise, lets dispose with making this personal. I enjoy your posts about bankruptcy. It just so happens I have thoroughly researched this subject of RM because I have been going through this very process, and I have found none of what was in that article to be true.

By the way, I am no expert on anything. I am a legal content writer who comes to this website to get ideas on what to blog on. I enjoy everyone's input. We all have the right to our opinions, but I don't want to make them personal. We don't really know each other, and please, lets keep it civil. Good luck in your posts.

i have heard of more scams than i have litgit companies. i'm certain there are out there, i do not consider this as gossip, it is to inform the OP of some of the dangers and while your situation may work well for you, people need to fully understand this could be trouble for one so tight in their budget. even your list certainly does not qualify them an alternative for many without understanding the negative outcomes or possibilities as a result of taking on out on ones house.

of course the OCC has laws they have them for all the banks period. we have all seen how the laws apply to lenders. what with a few million in fines after they have ripped people off of millions of dollars and more from so many. these laws are rarely enforced, and if they are, they are a drop in the bucket for the lenders. while your experience may be good, that's great, but i have heard more bad then good. my posts are not made up of gossip.



as far from the truth as you can be. i suggest you can guess all you like, but you are so off the mark. but it made me laugh.

[tobee43]

lol you are funny, i don't take anything you say personally, you apparently don't get this site.

we are here to help each other and not nag and shout and kick up our heels. people need to understand and know the good with the bad. and, no, i must admit i didn't check out your site, i wouldn't bother since you seem too adversary ;so there is really no point on any further discussion with you. too bad, because it seems like you may have a lot to contribute. however, again, i'm glad your reverse mortgage has worked well for you, understand this, many elderly do not understand what they are getting into and they should be made aware of both sides, i just gave one.

it's your approach, had you said thanks tobee on the negs but here's some of the positives that would be excellent. we want people to see both sides, don't we. i agree, it may work for some, i just want people to be aware that you must look in every direction, if you bothered to read some of my posts you will understand where i am coming from.

By the way, I am no expert on anything. I am a legal content writer who comes to this website to get ideas on what to blog on. I enjoy everyone's input. We all have the right to our opinions, but I don't want to make them personal. We don't really know each other, and please, lets keep it civil. Good luck in your posts.

i as well, i'm just a research paralegal with about 25 years of experience in that field and not in bk or real estate, although i have worked many case situations dealing with real estate and much in estate planning and such. i'm no expert at anything other than a bit of life. do not imply i am not being civil, to the contrary, the only one that's not civil is you, and no one is here to view your blogs....but you can read mine maybe it will help understand we are here to assist one another through hard times not judge people.

AKE SURE AND VISIT Tobee's Blogs! http://www.bkforum.com/blog.php?32727-tobee43

[LadyInTheRed]

Right now, I'm going to tell her that she should have a realtor come in and tell her what her house is worth in today's market. Is that a good starting point? Thank you all for your great advice and shared experiences!

Yes, that's a good place to start. She should investigate all options before deciding on one.

[IBroke]

My guess is that this forum was sponsored by mortgage companies who want seniors to be at their mercy.

LOL! This is a joke, right?

[tobee43]

Not knowing much about these reverse mortgages does scare me. She is over 65 and barely qualifies. They basically told her the house needed to be worth 135 to make this work. She would have to pay for the appraisal - 300 up front and it's out the door if it comes in lower than 135. The house needs a lot of ongoing maintenance. I personally think she should get out from under it. Problem is it's in such disrepair, I don't know if she could sell it. Does anyone have any advice on who she could speak with? She doesn't have the money for a financial advisor. The most I can guide her in is file bk and let the house go. I'm not sure that is the right decision for her.?. I do know that she is on Medicare but has no supplimental policy, and her health is not the best. At the minimum, I think she needs to be able to afford a supplimental policy to suppliment her medicare. Right now, I'm going to tell her that she should have a realtor come in and tell her what her house is worth in today's market. Is that a good starting point? Thank you all for your great advice and shared experiences!

while i don't recommend zillow as a credible source of what one's property is worth, it does indicate what has sold in or about your location and you get a good grasp on what is selling and for how much it went for. that would help you see what the properties in the area are selling for. if you see the exact same house 4 doors down having sold for way lower you in kind have a good idea where you stand, and in the opposite situation, if you see that it has sold for substantially more or close to what you are looking for, chances are you may be in good shape. what amount they actually sold for; which usually means they had to appraise on or about those sales amounts. although, if they came in low, the buyer would have to come up with the difference between the appraisal and the sell price with their down payment.

in other words it's a fairly good base line. zillow.com

hope that helps a bit.