Reverse Mortgage Risks
My parents have a reverse mortgage on their home. My elderly father has incurred an insurrmantable amount of credit card dept he will not be able to continue to make payments on. I am concerned that if he declares bankrupt he may lose his home. I guess the question is will he lose his house if her declares bankrupt, and if so, what would be the outcome if he just doesn't pay the credit cards without declaring bankrupt.
I am not an attorney, and laws pertaining to Bankruptcy vary by state. You didn't mention in your Post whether or not the Reverse Mortgage on the home has already used the available funds.
Generally, Bankruptcy Laws protect the home in which a person resides, and a Reverse Mortgage has built in protections, so I don't think the home would be in any danger were your Parents (or just your Father) were to declare Bankruptcy.
Certainly the rules and dynamics of not paying debt have changed a great deal, recently. There is far more room for negotiation of outstanding debt than there used to be. However, Creditors may still call those that owe them money, and Bankruptcy (as well as some forms of negotiation) put a stop to those calls, which I would assume might make things a lot less stressful for your folks.
If the bills were not paid, the creditors would have a future claim against your parents estate. If there is nothing in the estate, then there is nothing for them to collect. The issue is figuring out if there is a way to establish some peace-of-mind in the meantime.
I have been originating reverse mortgages for over six years. You cannot declare bankruptcy with a reverse mortgage. That would call the loan due and payable. I would recommend contacting an elder attorney in your area. Sometimes they can negotiate a reduced payoff and lower payments on the credit card balances. There are probably other options that the attorney could help you understand. There is a new issue on the horizon with property taxes. Make sure he keeps up with his homeowners and property taxes, which he agreed to when he closed his loan. HUD is requiring lenders to foreclose on seniors that are in default on their property taxes. Wells Fargo claims this is why they are getting out of the reverse mortgage business. They have a large amount of borrowers on the books who are in default and this will create a PR nightmare for their company.
How do you know whether or not this organization is affiliated with the lenders they recommend? It would certainly make a difference in their recommendations.
I was able to help my parents find the best reverse mortgage - this is a company which will compare the lenders and give us the best deal. I also found this HECM Reverse Mortgages website http://www.reversemortgagelendersdirect.com They are really helpful. May be helpful to others.
