Reverse Mortgages Can Cause Headaches for Heirs
A new government report shows many seniors are taking out reverse mortgages on their homes without fully understanding the ramifications, leading to foreclosures among borrowers and a tangle of problems for heirs after the borrower dies. “Consumer complaints tell us that the complex terms of reverse mortgages continue to be misunderstood,” said Richard Cordray, director of the Consumer Financial Protection Bureau, which just released a report highlighting the top complaints the agency received about reverse mortgages over the last three years. Problems and confusion are expected to continue as more baby boomers retiring with little or no savings turn to the loans for help getting by. Many complaints that the protection bureau received showed people were confused about the way reverse mortgages work. One of the most common types of complaints involved the inability of a borrower’s family members to assume the loan in order to keep the house when the borrower died, according to the report. Reverse mortgages prohibit loan assumptions because actuarial tables are used to help determine the loan amounts. Adult children may keep the home only by paying off the loan or by paying 95 percent of the current appraised value of the house. Those rules can present problems for multigenerational households when family members are living in the home at the time of the borrower’s death. Heirs also complained about what they believed were inflated appraisals that required them to pay more than they expected, the report said.
Source/more: Pittsburgh Post-Gazette
David Wingate is an elder law attorney. He practices in Frederick and Montgomery Counties, Maryland. The elder law practice comprises of wills, powers of attorneys, trusts, asset protection and Medicaid.