What’s Left of Tax Deferrals for Reverse Mortgage Borrowers?

Not much, is the short answer.

For reverse mortgage borrowers in Oregon who were previously enrolled in the state’s tax deferral program for low income seniors, they suddenly became disqualified this fall with changes to the program.

In its announcement of cutting the program, the state noted that the deferral program recovers funds from the sale of properties that leave the program, but that if there is no equity left in the home, there may be no way to pay back those deferred taxes. Thus, the program is less available for the people who need it, it said.

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With Oregon calling it quits on tax deferrals used in conjunction with reverse mortgages, it narrowed further the number of states that allow for both.

Previously, California offered tax deferrals for seniors, but cut that program in 2009. Currently, Massachusetts still allows for both.

Reverse mortgage borrowers in the state can do both, with lender approval, the state Division of Banks confirmed with RMD, but seniors are generally encouraged to consider the tax deferral as an alternative to (rather than in addition to) a reverse mortgage.

In an economy with increasing home values, the state still has a good chance of recouping its investment on both the deferred tax (plus interest) and on the reverse mortgage, but in light of the housing crisis, negative equity and putting off loan interest in addition to taxes puts states in a potentially losing situation.

Written by Elizabeth Ecker

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  • I believe Massachusetts reviews the remaining equity of the home before approving the tax deferral.  I’m not sure of the exact ratio, but I believe there needs to be at least 50% remaining equity in order for the deferral to be approved.  Those living in Massachusetts will want to check with their individual tax collector/assessor.

  • In most states, property taxes are assessed and collected by the county governments. Unless their state legislatures put overlaying restrictions on the county, many of them still offer property tax assistance programs for low-income residents and seniors. Many of these are not tax deferral programs like Oregons, but direct tax discount,rebate or credit plans. With these plans,  there is no future liability to be recouped from home equity, and so a reverse mortgage itself has no effect upon senior’s’eligibility for any of these programs that I know of.

  • I have recently spoken to a few borrowers in OR who were not yet aware of this change.  Unfortunately, I was the bearer of bad news and they were all in the same financial situation of not having the means to pay for these taxes coming due.  I don’t know the details of Oregon’s accounting of that fund balance, but it would have been nice if some of these folks were allowed to be grandfathered in.

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