In discussing reverse mortgages and New York bankruptcy, I demurred on whether they “work as intended.” As a brief reintroduction, a reverse mortgage gives the homeowner equity payouts over time rather than the homeowner “purchasing” equity with monthly payments. The Consumer Financial Protection Bureau (CFPB) recently issued a report that addressed the effectiveness of reverse mortgages. It’s only fair to add its two cents.
Based on 1,200 complaints filed with the CFPB over three years, most of which were filed by younger spouses and family members of borrowers, the bureau highlights the following issues:
- Many people complained that their lenders did not provide a clear mechanism for allowing them to settle the reverse mortgage after the homeowner died. Normally, if a homeowner with a reverse mortgage passes away, the heirs must choose to sell the home, pay 95 percent of the property’s assessed value, or repay the loan. Otherwise the lender will foreclose on it. Heirs felt that they couldn’t pay off the loans even if they wanted to, that banks didn’t return their calls, or that assessments were inflated to compel them to pay more.
- Other homeowners faced foreclosure for failing to pay their homeowners’ insurance or property taxes, which are still due despite reverse mortgages. In some instances, lenders’ poor record-keeping was at fault, but in others, it was just an unwillingness of local officials to accept overdue property taxes to halt foreclosures.
- Finally, many complaints were filed by family members who wished to be added to the reverse mortgage but could not. In these instances, the banks insisted on reverse mortgages’ requirement that the homeowner be no younger than 62. Many surviving spouses and children, who presumably were of age, wanted to assume the reverse mortgage and remain in the homes rather than clear the mortgage. The banks would not let them.
The CFPB gives fairly common-sense advice to homeowners to plan ahead when it comes to keeping up on property taxes and family members moving into the home. The press release, which links to the report and an advisory, can be found here.
Reverse mortgages are expected to grow in the future, but it’s unlikely that the problems family members find associated with them will go away. If you are running into a problem with a reverse mortgage, particularly after the homeowner who signed the loan has passed away, contacting a New York bankruptcy can help by raising an automatic stay that will halt a foreclosure.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Chapter 13 Bankruptcy attorneys Bruce Weiner for a free initial consultation.