“Conundrum” is a fancy word that has been defined as “a confusing and difficult problem or question”. It is aptly applied to reverse mortgages.
Reverse mortgages seem to be more and more popular and they can be a good financial move for people who don’t have an adequate income stream or savings to experience the quality of life they desire. Given the high value of real property, some people find themselves “house rich and cash poor”. Qualifying for a conventional mortgage might be problematic because the homeowner has retired and the pension and/or social security payments are not enough. With a reverse mortgage a homeowner (aged 62 or older) can tap into the home equity and obtain a lump sum payment or income stream, depending on the type of reverse mortgage obtained. There are many companies that offer reverse mortgages and a person interested in obtaining one should fully explore all of the options and compare prices.
Clients have asked me if a reverse mortgage has any effect on property that is in a living trust. Generally speaking there is no problem with having your property in a living trust while you have a reverse mortgage on the property. In fact, I was recently talking with a person who sets up reverse mortgages and they said that reverse mortgage companies now prefer that the property be held in a living trust. They stated a few reasons, the first being that when the property owner passes away the process of identifying the persons with authority to make decisions and control the disposition of the property is simple. Secondly, the transfer of the property to the heirs is usually much quicker when the property is in a living trust. If the property is not in a living trust and a probate case is needed to transfer the property, the probate can take a year to complete at the minimum. During this time some reverse mortgages continue to accrue interest so that the amount to be paid to the reverse mortgage company is much higher than the amount due when the property owner died. Also, most reverse mortgage companies have specific time limits for the mortgage to be paid once the owner dies. If the deadlines are not met, the property could go into foreclosure. Because of the high cost of probate and the possibility of a declining housing market during the probate time frame, the heirs might have to settle for far less than they would have received if they had the ability to refinance or sell the property soon after the property owner died.
If you have a reverse mortgage or are considering one, you should make sure that your property is held in a living trust.
© 2021 by Marlene S. Cooper. All rights reserved.
(You may obtain further information at the website www.marlenecooperlaw.com, by email at MarleneCooperLaw@gmail.com, by phone at (626) 791-7530 or toll free at (866) 702-7600. The information in this article is of a general nature and not intended as legal advice. Seek the advice of an attorney before acting or relying upon any information in this article).