NY Times: Reverse Mortgage Heirs Face Pitfalls

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.

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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.

Read more at The New York Times

Written by Jason Oliva

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  • My client’s heirs are reporting many of the same types of issues and many times the tactics seem heavy handed. HUD has been lax in requiring consistent application of the rules so maybe CFPB should have a go at it, if they’re not too busy chasing their own shadows.

  • I question the accuracy of this reporting. And the problem here is that inheritance is what is remaining in the estate. How can a child complain about their parents using their assets for themselves? These people should be ashamed of themselves and I feel the NYT is irresponsible in this article.

  • Sadly, there are already over 500 comments on this article showing the that THIS is what consumer’s are reading and we’ve got a lot of work to do. Hopefully the alleged failures to inform the heirs of their options are the exceptions and not the rule…but you wouldn’t get that impression from this piece.

  • One would hope that our servicers make these options available to our borrowers at first conversation. Its important that the alternative contact knows these things as well and its not just a name you have them write on the application. Would like to see some extra attention spent by NRMLA on this one.

  • I find this article from the NY Times lacking in most areas for actual sources other than borrowers heirs and advocates.
    I get that some children are not happy that they will not have an inheritance that they were counting on and how they may not be able to keep the home even if they wanted it (which I find most do not). And I even get that if the RM Banks are in fact not being up front on the rules and options for the heirs that this is wrong. That could be the story, not how the heirs find out that they are not getting anything and how this makes their parents getting a Reverse Mortgage a bad thing. This quote
    “Ms. Santos, 61, along with a growing number of baby boomers, is confronting a bitter inheritance: The same loans that were supposed to help their elderly parents stay in their houses are now pushing their children out. “My dad had nothing when he came here from Cuba and worked so hard to buy this house,” Ms. Santos said, her voice quivering”, is so miss leading. What about the fact that yes her dad worked hard to buy the home and in the end all his hard work paid off because he was able to get a Reverse Mortgage which kept him and his wife in the home until they passed away? How is that a bad thing? The fact that Ms. Santos is not getting the home although unfortunate, is not a story. Was she able to give her parents financial help so they would not have had to take out the RM, I doubt it. The fact that the home has not foreclosed yet and it has been 3 years since her mother passed away tells me the bank has be very lenient and gave her a chance to do something.

    These loans are for the owners of the home, NOT for their children! Yet I have done countless Reverse Mortgages for parents that were helping their children because they were living with them, needed money to go back to college after they lost their jobs, sending their grand kids to college etc. The fact that part of a generation is losing some of their inheritance is not the fault of the Reverse Mortgage industry as this story would have you believe.
    If in fact the banks are not working in the manner that HUD has outlined, then that is a problem, but I would like to see the actual facts and statistics on this, not the word of heirs and their advocates.

  • I can see where this can be a major problem for the heirs of the borrowers. First off we need to start educating the borrowers more and the borrowers heirs as to how to handle the property and the servicer of the reverse mortgage in the event of the parents death.

    One important item that I feel our senior borrowers and their heirs should seek is an elder attorney and make sure all the borrowers wishes are in order as to how they want their estate to be handled and as far as the seniors heirs are concerned as well.

    We are not attorney’s and I am not saying we should act as such but we can sure advise our senior clients to have their estate in order if they do not.

    We do not know the circumstances with the heirs of the seniors mentioned in the New York Times Spot Light article. However, if the estate of the senior’s were in order and the heirs were educated how to handle the property and reverse mortgage with the servicer if the parents passed away, many of the problems mentioned may not be issues any more!

    If the heirs were to take action if their parents passed away with the servicer of the reverse mortgage, such as notify the servicer of their intentions, I feel a lot of what the article is referring with the heirs to would be diverted!

    John A. Smaldone

  • Where is the proof? Have they reviewed any of letters sent by the servicer to confirm that option was not offered? It seems as though this article is complete hearsay…I would have expected more from the NYT.

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