Washington Post Explores the Reverse Mortgage as Divorce Solution

Using reverse mortgages to help soften the blow of so-called “silver divorce” has gained momentum as a potential strategy in recent years — and now a nationally syndicated columnist has weighed in.

Benny L. Kass, a lawyer who pens a regular real estate column that appears in the Washington Post, Chicago Tribune, and other papers, explored a fictional scenario involving a divorcing couple in their 70s. The husband wants to move out of the home, and the wife intends to stay, but the $600,000 property still has a $200,000 mortgage.

“This is a very common problem throughout the country,” Kass wrote. “With the divorce rate increasing among seniors (the ‘silver’ divorce), too many couples seeking a divorce either have to sell the family home, or the spouse who will not remain in the property is unable to buy something else.”

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The incidence of older Americans divorcing is indeed on the upswing: The breakup rate for married Americans aged 65 and older tripled between 1990 and 2015, according to a 2017 survey from the Pew Research Center.

Kass proposes a kind of “double reverse” solution for the fictional pair: The wife can take out a reverse mortgage on the property and receive about $286,000, with $200,000 going toward paying down the existing mortgage on the home — and the remaining $86,000 helping form the husband’s down payment on a Home Equity Conversion Mortgage for Purchase transaction on his new condo.

“If Sam and Sara both qualify for their HECM, Sara will stay in the family home, Sam will have his own condo, and neither will be obligated to pay any mortgage so long as they continue to reside in their respective properties,” Kass concludes.

The columnist also advised anyone interested in exploring such a solution to consult their attorneys and financial counselors. Kass additionally directed readers to explore reverse mortgage resources developed by the Department of Housing and Urban Development, AARP, and the Federal Trade Commission before making a firm decision.

Read Kass’s full column at the Washington Post.

Written by Alex Spanko

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  • While I am a strong proponent of using HECM proceeds to satisfy a property settlement in a divorce, I found the article to be annoyingly short of legal reason and financial substance to establish why Sara would ever pay the $86,000 to Sam or how that was exactly the amount needed to complete the property settlement and work out as exactly the amount needed to acquire the condo beyond the H4P proceeds. It seems the author, an attorney, has little experience with property settlements or HECMs.

    Now if the $86,000 was exactly the amount needed from Sara to execute the property settlement, then the story becomes an excellent example of how to use a HECM in a property settlement but that does not solve the problem of how that same $86,000 was also exactly the amount needed to close the purchase of the condo beyond the H4P proceeds.

    If anyone walked into a competent and experienced family practice attorney’s office with this example, in all likelihood, that attorney would throw up his/her arms in disbelief and politely move on as quickly as possible.

    If someone can explain this example without filling in unstated details, be my guest. Otherwise, the example seems little more than worthless.

  • This sure sounds like a great idea but can you get both husband and wife to agree on the concept? What sounds like a common sense approach may not be when two seniors are about to get divorced!

    However, it sounds logical and it should not be a stone un-turned. It sure is going to tale a brave reverse mortgage specialist to get in the middle of this one!

    Actually, it is a good idea:)

    John A. Smaldone
    http://www.hanover-financial.com

    • John,

      I had a couple call me about working with them on finding a way to let the wife take title as the sole owner; the home was community property. This before July 30, 2008, so there was no H4P.

      The home was the smallest and least valuable home in a community near USC and was appraised at $600,000 when the lending limit was $362,790. There was a $225,000 mortgage against the property but even with the higher HECM PLFs back then, there was no way to pay off the existing mortgage and give them sufficient funds to complete the property settlement. They ended up selling the home because the husband did not want to be the remainderman in a life estate for the wife on the home.

      The family practice attorney who recommended the HECM had seen the situation work for another couple who divorced five years earlier. When I brought this up to my industry mentor he said he had tried to work this out with wealthier customers (who did not qualify for a Financial Freedom Cash Account) using a HECM and it never provided enough cash to make it work.

      The example the attorney provides in the article is unrealistic unless it takes exactly $86,000 to complete the property settlement or there are sufficient other assets to complete it. The example is far too simplistic to be used as a model without considerable modification.

  • While a counselor I did a number of these. The biggest problem was always getting them together (and not arguing) for the counseling. With one coming off the deed, counseling was always required for both. A number of people chose to pay for two separate sessions rather than come together.

    Another problem that often came up was trying to do it in a time frame set by the court. Quite frankly, divorce lawyers usually don’t know enough about HECMs and therefore do not ask for the right amount of time. (Hint, if you are working with a divorce lawyer on one of these, make sure you give him/her outside time limits, otherwise they will make it way too hard to get it done in time, and they will blame you.)

    Frank Kautz
    (No longer a counselor)

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