Tampa Bay Times: Homeowners Stumble Over Reverse Mortgage Complexities

Reverse mortgage rules may prove too complex for some homeowners even with the required counseling needed prior to loan closing, according to a Tampa Bay Times article.

The article describes a scenario involving an elderly couple who obtained a reverse mortgage on their St. Petersburg home in 2007, ended up falling behind on their property tax and homeowner’s insurance when their premium jumped, and are now facing foreclosure.

“The couple now wish they had better understood the seemingly simple reverse mortgage, a frequent lament of homeowners who turn to what is actually a complex financial product,” writes the Times.

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Though the couple was required to meet with a government-certified housing counselor before they could obtain the reverse mortgage, the article suggests neither of them paid much attention to the terms of the loan.

Obtaining a reverse mortgage from Kansas City, Missouri-based lender James B. Nutter & Co. the couple agreed to have their existing $153,750 mortgage paid off, therefore eliminating their previous $800 monthly payment.

They would in turn owe that prior mortgage debt, plus interest, to be deferred until the husband—the sole title holder—died, moved out or failed to pay the required taxes and insurance.

In 2012, the mortgage company began foreclosure proceedings after the couple ran into trouble when two difference companies cancelled their insurance, first because of “hazardous tree limbs” on the property, and then because they had failed to make a payment.

By Tuesday of last week, the amount the couple owed toward the balance of their reverse mortgage totaled $217,402.

A circuit court judge ended up ruling against the couple, citing their delinquent insurance payments, and gave them until July 25 to vacate their home.

Read the Tampa Bay Times article.

Written by Jason Oliva

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  • Am I missing something? This couple would have been evicted had they kept their previous mortgage and then fell behind on their property taxes and insurance. The reverse mortgage isn’t the culprit. The cost of insurance in Florida is. They’d have lost the house either way, and removing an $800 mortgage payment probably helped them enjoy their retirement.

    • Jim,

      The culprit is the cost of insurance?

      I really do not think so. The real problem was financial obligations exceeding the cash flow available to this couple.

      What our industry as a whole fails to understand is the most crucial need of most needs based seniors is not simply a means of increasing cash flow. The most basic need is actively planning and managing their cash flow in a prudent manner. Getting more cash flow may help for a significant period of time, but ultimately not adequately managing cash flow will take its toll. Prudent management requires having monies set aside for contingencies such as an inordinate rise in the cost of insurance.

      There are needs based seniors who do not have sufficient cash flow to be managed. If that was the problem here, the couple should have downsized in 2007 rather than take the reverse mortgage on the current property. No doubt the equity in the home would have been much greater then than now. (There is a great possibility that the cost of that insurance would have been less as well.) But I doubt if the originator would have recommended that result.

  • Important to note that they haven’t paid their insurance since 2008! They also were losing the home to foreclosure in 2007 which is why they got the reverse in the first place. This couple was able to get 7 extra years in their home because of the reverse mortgage, even after not maintaining the home or maintaining insurance on the home.

  • This is a sad situation, I hate to hear of things like this. However, this proves out something’s we all realize and that is we need to continually be educating our originators and staff. It is so important, starting from the originator that he or she understands the products and technical areas of our product. We must take the time with our seniors to explain thoroughly the benefits as well as the pit falls of a reverse mortgage. There should be no questions left on the minds of our seniors by the time their loan closes!

    This particular case has some questions that need answering. I am having a hard time grasping on to the problem of why a foreclosure would take place because of the problems mentioned.

    Number one, hazardous tree limbs on the property? Why didn’t they get the limbs cut??

    Second issue, non-payment of their insurance payment, I thought their insurance company plus another one cancelled them.
    How could a foreclosure come out of a missed insurance policy payment on a policy that was cancelled due to hazardous limbs on the property?

    I don’t know, something is not right here, just think about it for a few minutes! There has to be more to the story that we do not know. I read the news paper article and I feel Jason Oliva did a very good job in writing the Daily Post article but still feel something is missing?

    John A. Smaldone

  • I apologize if this sounds dumb, and maybe I am missing a rule or regulation that this may violate, but isn’t it possible to have a sort of escrow type account draw from the Reverse Mortgage balance on an annual basis towards insurance and taxes for the year, similar to a forward mortgage (either automatically or voluntarily)?
    Those are really the only reasons, other than death that would preclude a foreclosure on a reverse, correct? It would/could still be considered financial planning for the senior homeowner and minimize the risks of the foreclosure process. Again, I am spit-balling and just not sure if I missed a rule or regulation that prohibited such an action.

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