Oregon Governor Signs Reverse Mortgage Property Tax Deferral Law

While issues surrounding property tax deferral programs for reverse mortgage borrowers in the state of Oregon have persisted for years, the signing of a new law that takes effect this September allows an individual whose residence is in the state’s tax deferral program to adopt a reverse mortgage that has at least 40 percent equity interest in their home at the time of filing his or her claim.

Oregon Governor Kate Brown signed H.B. 2587 into law on July 23, and the law is expected to take effect on the 91st day after the end of the state’s legislative session, which in this case would be on September 29.

In Oregon, the homestead property tax deferral program is administered by the state’s department of revenue, and allows certain disabled people or senior citizens that meet certain qualifications to borrow money from the state (at a 6 percent interest rate) to pay their local property taxes. The money is then repaid when the property is sold, or can be recuperated from the estate of the borrower.

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Prior to the passage of the law, reverse mortgages on the properties participating in the program have been prohibited. This new legislation changes that, allowing for some homeowners in the tax deferral program to have a reverse mortgage available to them.

According to a document from the Oregon legislature detailing the body’s determination of the bill’s fiscal impact, the Oregon Department of Revenue estimates that there are approximately 4,000 individuals who own properties with reverse mortgages that were closed between 2011-2017 that may qualify for the senior deferral program once the law goes into effect.

While this bill seems aimed at opening up the options seniors have in managing their finances, the program’s offerings may be at odds with the Home Equity Conversion Mortgage program, according to one CEO.

“We have seen this happen many times where borrowers have a tax deferral on their property tax,” says Michael Mazursky, CEO of iReverse Home Loans based in Carlsbad, Calif. “Every time it seems like the deferred tax bill would need to be paid at closing. A tax lien is superior to a mortgage lien, so the tax deferral would get paid first before the HECM.”

For Mazursky and iReverse, this has created complications that have had direct implications on the ability to conduct business inside the state of Oregon.

“It has been a deal killer, and most seniors in a tax deferral program do not want to pay that huge tax bill if they don’t have to,” he says. “It will significantly reduce the amount of proceeds they get, but most of the time, they won’t even qualify once that is factored in. I’m sure in some cases it will benefit the senior to move forward, but I have yet to close a HECM where a senior has elected to defer property taxes.”

Voting in both chambers of the Oregon legislature took place on May 15 and passed in each of them with clear majorities, before being sent to the governor’s desk for her signature late last month.

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  • Article states:

    “…allows an individual whose residence is in the state’s tax deferral program to adopt a reverse mortgage that has at least 40 percent equity interest in their home at the time of filing his or her claim.”

    and

    “…there are approximately 4,000 individuals who own properties with reverse mortgages that were closed between 2011-2017 that may qualify for the senior deferral program once the law goes into effect.”

    I’m unclear on what the program is offering. Is the state going to allow existing tax deferral participants to encumber their property with a reverse mortgage, or allow existing RM borrowers into the program? Or both?

    Either way, the state may be assisting borrowers to breach their loan contacts, placing them in default and possibly triggering a due and payable event:

    HECM Trust Deed; Section 12 (b) Tax Deferral Programs –

    “The borrower shall not participate in a real estate tax deferral program, if any liens created by the tax deferral are not subordinate to this Security Instrument.”

    Allowing this lien to remain in place appears to also violate Sections 12(c) Prior Liens and Section 21 Lien Priority since tax liens are superior to the RM.

    What happens when it’s time to assign this loan to HUD and the lender can’t clear title? Foreclosure doesn’t wipe out tax liens, so if the lender has to take the property back at a loss will they try to recover from the borrower? On a non-recourse loan? On loans already assigned, will the MI fund take further hit?

    “Oregon Governor Kate Brown signed H.B. 2587 into law on July 23…”. Guess nobody on her squad mentioned the Law of Unintended Consequences got slipped into the stack.

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