Everyone from former U.S. Senator Fred Thompson to actor Robert Wagner is currently pitching reverse mortgages on television. From the advertisements, these financial transactions appear to be a lifesaver for cash-strapped retirees. However, homeowners should understand that reverse mortgages also carry significant risks.
In basic terms, a reverse mortgage is a special type of loan that allows homeowners to convert a portion of the equity in their home into cash. To apply, homeowners must generally own their home outright or owe little money on an existing mortgage, as well as meet certain age restrictions. Borrowers can elect to receive periodic payments or a lump sum disbursement. They must still pay annual taxes, property insurance, and maintenance or risk default on the mortgage. Most reverse mortgages are non-recourse loans, which means that the lender has cannot pursue any of the borrower’s other assets in the event of default.
Reverse mortgages do not have to be repaid until the home is sold, no longer used as a principal residence, or the borrower defaults on the obligations of the mortgage. At that time, the borrowers must repay all payments, interest, and finance charges. If the borrower dies, the loan must also be repaid, and any remaining equity in the property then passes to the heirs. Any mortgage debt, however, is not transferrable.
While reverse mortgages sound good in theory, they do not always work out as anticipated. In fact, approximately 1 in 10 were in default at the end of 2012.
In addition, many spouses who removed their names from deeds and did not sign mortgage documents in order to meet reverse mortgage age requirements have found themselves facing foreclosure upon the death of their spouses. Lenders claim that the death of the borrower triggers repayment obligations, while the surviving spouses maintain that brokers promised them that they would not be displaced.
The disputes are currently the subject of several lawsuits alleging that lenders failed to comply with the terms of mortgage agreements. The Department of Housing and Urban Development, which insures reverse mortgages, is also facing a suit alleging that agency policies failed to comply with a federal law that specifies that surviving spouses are considered homeowners even if they are not listed on reverse mortgage documents.
The bottom-line is that homeowners should fully consider all of their options before deciding to pursue a reverse mortgage. Like all financial transactions, it carries both risks and rewards.
If you have any questions about reverse mortgages or would like to discuss the legal issues involved, please contact me, Victor Kinon, or the Scarinci Hollenbeck attorney with whom you work.
A Whistleblower Just Filed a Complaint Against Your Company: Here's What to Do Now
Few situations create more uncertainty than learning that an employee has filed a whistleblower complaint. Questions arise immediately: Is the allegation legitimate? Should the employee be placed on leave? Do we need to notify our insurance carrier? Are we now prevented from disciplining the employee if there are unrelated ongoing work related issues? There is […]
Assignment for the Benefit of Creditors: An Alternative to Bankruptcy for Distressed Businesses
When a business reaches the point where it can no longer service its debts or otherwise resolve its liabilities, management is often faced with a difficult question: is a bankruptcy filing necessary or is there another way to perform an orderly liquidation or sale of the business assets? While Chapters 7 and 11 of the […]
Breaking Down New Jersey’s “Mansion” Tax: What Buyers and Sellers Need to Know
For many years, the New Jersey Mansion Tax has been a significant consideration in high-value real estate transactions. Recent legislative changes, however, have substantially altered how the tax operates, including who is responsible for paying it and the amount owed in certain transactions. Whether you are purchasing, selling, or investing in New Jersey real estate, […]
Estate Planning for Digital Assets Under New Jersey Law
As our personal and financial lives increasingly move online, estate planning must evolve to address a new category of property: digital assets. From email accounts and social media profiles to cryptocurrency and cloud-stored business records, these assets often carry both financial and sentimental value. Yet, without proper planning, they can become inaccessible—or even lost—upon incapacity […]
The Role of Representation and Warranty Insurance in M&A Transactions
In today’s mergers and acquisitions market, representation and warranty (R&W) insurance has become a common feature of deal negotiations. Once used primarily in larger transactions, R&W insurance is now frequently incorporated into middle-market deals as buyers and sellers look for efficient ways to allocate risk and close deals. When structured properly, R&W insurance can help […]
You Just Received a Federal Grand Jury Subpoena in New Jersey: Now What?
Receiving a federal grand jury subpoena is not something most businesses or individuals anticipate. While it can be concerning, a federal grand jury subpoena does not necessarily mean that you are being accused of wrongdoing. It does, however, mean that a federal criminal investigation is underway and that federal prosecutors believe you may possess information […]
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Sign up to get the latest from our attorneys!
Explore What Matters Most to You.
Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.
Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.
Let`s get in touch!
Sign up to get the latest from the Scarinci Hollenbeck, LLC attorneys!
