LEGAL MATTERS Reverse Mortgages 10/20/09 2 of 3

LEGAL MATTERS Reverse Mortgages 10/20/09 2 of 3

means that people have to understand a conventional mortgage you borrow the money and every month you make a payment on that mortgage if you miss a payment of we've talked about in past shows the house will be foreclosed on you lose the house the reverse mortgage you borrow the money and as Jackie was explaining there's different ways you can borrow it out and we'll get into some more detail on that but the important distinction is that a reverse mortgage is not paid back until the person who borrowed the money dies and then their estate has to pay the money back yeah there are a few limitations with that if they sell of course you're free to sell the home so you still own the home just like you did an unconventional mortgage you still have your responsibilities you have to pay your taxes and your insurance and just like with a conventional loan if you don't pay your taxes you're considered in default and your reverse mortgage company could call the loan also if you again if you sell the house then you have to pay off the reverse mortgage or if the individual resides out of the house for 12 consecutive months that's considered being away from the home and that may trigger a payoff on your reverse mortgage and I think we should probably pursue it a little bit if someone is outside of the home and that may mean if you're a senior citizen and you had a hospital stay it's not a short stay becomes a long stay if you need a rehab Jackie what is that what's 12 month 12 consecutive months so it you know if there's a period where you're in and you're out for three months and going back it's 12 consecutive months oh if they were in assisted living i have to go into a nursing home provided you're there for 12 consecutive months that will trigger your acceleration clause on the reverse mortgage and it would have to be sold right it's a house would after as jackie was explaining the similarities between a regular mortgage and a reverse mortgages it's a lien on your property just like the mortgage is a lien on your property when you borrow the money the mortgages taken out against your house if you sell your home you have this loom that has to be satisfied so whether it's a conventional mortgage or reverse mortgage one of the things that will trigger the repayment is jackie says is the sale of the home because you can't sell the home to someone else without removing that lean right away with liens well we're on the topic in order to receive your reverse mortgage any existing lien on the property does have to be paid from the reverse mortgage so it's a way of also paying off the existing debt on the property and their whole other list of requirements for instance there has to be equity in the property the property can't exceed a certain value the individual borrowing the money has to be 62 or older it's all regulated by federal government hunt and is useful in different situations that's the upside we also understand that while there can be good value in having a home equity loan many people who have are considered to the house rich in cash poor that's why Jackie can be explaining the positive side except there it's fraught with problems too as we've understood it those who either aren't ethical and how they portray or depict what's being done why don't you go through some of the issues that people should be aware of because from what we've been reading there certainly are some pitfalls or potential pitfall I think anybody who is going to pursue a reverse mortgage needs to know first in first and foremost that it is regulated by federal government so if if a bank comes to you and says we're going to charge you 7500 or eight thousand dollars in closing costs that is not it's not within the certain mandates the closing costs can exceed six thousand dollars now some people may say I don't have that kind of money how am I going to pay that well the good side of that is that can actually be financed into the loan so if anybody is saying a bank or a broker is trying to tell you the closing costs are going to exceed six thousand dollars then that's a red flag the other thing the federal government mandates is that before someone can even inquire even signing a document for reverse mortgage they have to have a counseling program so usually it's an approved counselor and it's a safeguard for the families int for the borrower's and their families and it's free of charge again it's given by a non-profit agency again mandated by federal government the issue with the family is okay and you know what I'm going this because you're smiling the family feels as though they're going to lose out on their potential inheritance because the reverse mortgage although you're not paying it back it does get payback over time so the longer you live the higher the balance will go up and if you have longevity in a family I have a great out just turn 105 god knows what that's going to do you know and the family always have concerns over what their future inheritance would be I've had several cases that we've recommended the use of reverse mortgage it does not always work it's not always the right thing to do but if urine it older person and you run out of money to live the lifestyle that you want to live you have to weigh in balance exactly what Jackie said do I want to make my life more comfortable now at the risk of not having anything left to leave to my children or do I want to suffer and struggle and leave something to my children at the end and that is a difficult balancing act sometimes to do but as an advocate for the elderly and an older person I had a situation where woman has a house with equity it had a first mortgage on it but very small and she couldn't afford her life her credit cards were maxed out her bills for utilities and electric heat so forth were all behind and she was not making it month to month the problem was that asset the only asset she had was the house and if she could have filed bankruptcy perhaps you could have wiped out the other debts and had enough to live on to pay the first mortgage and taxes but she couldn't file bankruptcy filed before so my recommendation was take out a reverse mortgage Bauer enough money to pay off all of the debts that you have and free up your lifestyle so you can afford to live month to month and have food that's much more important than having an asset to leave to your children at that point it's interesting David you mentioned that someone came to you where you spoke to someone about a reverse mortgage most of frequently you hear of those taking place with a financial advisor perhaps a bank or credit union and those who are ethical and I guess we have to underscore the importance of finding someone who's the colon checking having the right referrals so that you know that the person is ethical whether the institution is ethical they can help you evaluate what the best course of action is reverse mortgages carry with them as I understand heavy debt load or cost as Jackie explained so it just depends on how much the individual wants one bottle so if they need let's say in my case before the individual needed an extra five hundred dollars a month and maybe the individual wanted to pay for a new roof or do some repairs but let's say all they're doing is just using $20,000 that amount will grow as the person ages of the longer they live if they want to borrow two hundred thousand dollars and again you can do whatever you want with the money provided you pay off the existing liens and mortgages on the house that amount is going to grow sometimes they'll just give you a line of credit it's just like a checkbook church works just like a conventional hormonal line of credit where you're just writing a check as you need it so it's as needed basis and that probably is an interesting point to bring up because in fact when a reverse mortgage happens you know that that can be expensive money home equity loans which may or as you're talking bows are being able to write a check can sometimes make that easier for someone now if they go to a lawyer such as yourselves you have no vested interest in either one yet a reverse mortgage is something you're more likely to be directly involved in and what would you do with someone who is in that kind of financial situation to be asking either or let me go back to that example the first thing we looked at for that woman was whether or not she could get a home equity line of credit as you were saying reverse mortgages are expensive the fees are high the good thing is you don't have to have the money upfront to pay from you can borrow it but the fees are high the line of credit situation you're just going to be paying interest monthly usually there's no cost to get a line of credit the woman wouldn't qualify for a line of credit given her financial situation with all the outstanding debt under credit cards the first mortgage was starting to fall kind the utility bill she couldn't qualify the only loan she could get was a reverse mortgage we looked at that first the other thing you should understand is as jackie was explaining there are different ways you can take the money in a reverse mortgage you can take it in a lump sum and use it as you want as jackie was explaining in the case we had the women had enough income if she didn't have all those other bills to make ends meet so all she needed was the lump sum she could have taken it as a lump sum with a line of credit or you can take the money monthly as income and say pay me five hundred dollars a week supplement your income every month if that's what you need to get through what grows is if you take the money monthly as jackie was explaining that grows as the loan growth the interest grows and the concern of the relatives in that case is if the interest grows and she lives for a long time there's going to be no equity left in the house i'm not getting anything that's true but what's in your mom's best interest


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