Highlighting several cases from recent years, an article this week from The New York Times spotlights possible reverse mortgage pitfalls that have borrowers’ heirs have experienced when the loan becomes due.
The article discusses various instances where the heirs of reverse mortgage borrowers have faced foreclosure of their parents’ homes following the death of the loan’s holder.
“Reverse mortgages, which allow homeowners 62 and older to borrow money against the value of their homes that need not be paid back until they move out or die, have long posed pitfalls for borrowers,” the article states.
In several cases outlined in the article, heirs claimed they had little knowledge regarding details about how to keep their family homes, with “many families” reporting lenders commenced foreclosure proceedings within weeks of the borrower’s death.
Several said they were not aware of their ability to purchase the home for 95% of its appraised value at the time of sale and could not otherwise afford to repay the loan.
While there is no data on how many heirs are facing foreclosure because of reverse mortgages, The New York Times article suggests that is “a growing problem already affecting an estimated tens of thousands of people.”
“And it is one that threatens to ensnare future generations, as older Americans increasingly turn to their homes for case,” the article writes.
Written by Jason Oliva