Should my mother sell me her house now?
My 86 year old mother took out a reverse mortgage on her home quite a few years ago, (within months after reverse mortgages were first offered). She received monthly installments and, additionally, she received "lump sum" payments several different times. Consequently, the available money "ran out" and she received her last monthly installment in 12/08. The interest, of course, continues to accrue at a frightening rate, in addition to monthly "fee" and "processing" charges that are added to the principal.
My mom has congestive heart failure, stage 4-5 renal failure, diabetes, is blind, 100% incontinent, and has severe peripheral neuropathy in both hands and feet. In order to let her live out her days in her home, rather than having to face a nursing home, I moved in with her in May/08 and have been her full-time, (24/7), caregiver ever since. Although I tried operating my small business on a very limited, part-time basis for the first couple months, it became very clear that taking care of my mom would require my round-the-clock, 7 days a week attention, so I had to close my business. Consequently, our only income is my mom's Social Security and the small amount that Medicaid pays me each month as her care provider.
At the age of 52, however, I still have to think about my own future after all of this is over. I will be reopening my business, but, of course, it will take some time to get it back up and running at a profit. I plan to stay in my mom's home, and I know that with the reverse mortgage I will need to secure a mortgage of my own in order to pay off the reverse mortage. As far as I know I will have 6 months after she passes to obtain the necessary funds, etc.
What scares me, however, is how much the reverse mortgage will continue to grow until that time that I can pay it off. Herein lies my question. Would it make more sense for my mom to sell me the house NOW, as I could more than likely get a much lower interest rate than what is accruing on her reverse mortgage? Would this be allowable under Medicaid? Would she lose her benefits if she sold her home, especially if she received any sort of a profit after paying off the reverse mortgage, no matter how small?
Thanks so much! Sorry this is so complicated, but I tried to give you all of the facts. Thanks again!
Thanks for your question. It is certainly an important one. Given that mortgage rates are currently extremely low and expected to rise in the future, it might be wise for your mother to sell you the home now, so you can refinance the reverse mortgage into a conventional mortgage.
However, there are two other things you should be aware of, given what you said about your situation. The first is that before your mother sells you the home, you should make sure you qualify for a conventional mortgage and have the money to make the mortgage payments. While low interest rates are available right now, many lenders are tightening credit and income requirements for borrowers. If you're unable to secure a conventional mortgage at a good rate, then it may make more sense not to sell now. Talk to a knowledgeable mortgage broker or bank to get a sense of where you might fit in, and keep an eye on the fine print.
Secondly, it is likely that your mother can sell the home while remaining Medicaid eligible, but it depends on how much money she receives and what happens to the proceeds. As long as she does not have more than $2,000 in her bank account at the end of any given month, she should remain Medicaid eligible. However, as Medicaid eligibility is hard to regain once lost and requirements can vary by state, you should check with the Medicaid office or a Medicaid specialist to make sure your mother does not lose her Medicaid eligibility if she chooses to sell you the home now.
I hope this helps. Best of luck caring for your mother and getting your business back off the ground!
This is a tough situation that I have experienced with clients in the recent past and it has become even more acute as economic conditions remain challenging.
The true issue is that purchasing the house from mom at this point may not make economic sense as I'm sure the property value has fallen appreciably and the mortgage balance is substantial.
Moreover, if you are not employed and the only household income is mom's Social Security, how do you propose to qualify for a mortgage?
Then there is the issue of maintaining Medicaid eligibility. If mom sells the house to you, which she must do at fair market value, the proceeds will have to be disposed of in the month received to maintain Medicaid eligibility.
Obviously if she gives a gift of the proceeds back to you or another party she will lose eligibility and if she holds the proceeds she will lose eligibility. There are, however, techniques available to deal with this issue.
This presupposes, though, that she actually realizes a cash gain from the sale. If she sells the property to you, and realizes no cash, then she should have no problem maintaining eligibility.
But again, unless there is a co-signer or you have some way to secure a mortgage under these circumstances, the point is moot.
Barring some economic miracle, I'm sorry to say the more likely outcome is that upon mom's demise you will end up letting the bank take the house and that is what you should plan for.
But who knows, if you leave things as they are for now and values have recovered enough by the time of mom's passing and you have some income at that point you may be able to make it work out.
I am pleased to see Q & A on the topic of reverse mortgages, especially the cautionary notes. My mother, who passed away relatively suddenly in 2008 at age 89 had taken out a reverse mortgage on her home in 2003. She used the money to make a few upgrades to a small house. (I don't know all of the details regarding how the money was spent. I live across the country and was unaware of the reverse mortgage until the time of her death in 2008. However, it's my understanding that there was a remaining $27,000 that would have been available for her to use at the time of her death.) I am sure that my mother had no understanding of the front loaded fees, insurance, etc. that would be involved.) Unfortunately, my younger sister (who has Meniere's Disease) lived in the home with her and looked after her. The only source of income was my Mother's SS and small pension. My mother left my sister the house in her Will. However, with fees, interest, (all those things that have been mentioned), the bank basically took the house, leaving my sister homeless. To make matters worse, (and despite the best efforts of the attorney acting as the Administrator of the estate)- relentlessly pursued a path to foreclosure. Fortunately, despite the bad market, the house sold relatively quickly (at close to appraised value) for $103,000. After all fees were paid, my sister received a check for $3000. While my sister's health and financial issues make the situation much more complicated, there is a cautionary tale. It would seem wise to planning ahead so that you will have the income you need and comfortable living arrangements when the time comes. Good luck.
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If you are thinking of paying off mom's reverse mortgage you have a number of options. You can purchase the property for 95% of the appraised value or payoff of the loan whichever is less. You can purchase with a new conventional loan if you wish. It is definitely worth exploring that option because of the accruing compound interest, fees and costs of the reverse mortgage.
I was a 24/7 caregiver for my mom for the last 6 years of her life and in the same circumstances as you are.
Otherwise, you should evaluate if the reverse mortgage is meeting the purpose of getting or keeping a reverse mortgage: Use as a tool in your financial strategy, meets your financial goals, and provides financial security through retirement. A reverse mortgage is a complex financial instrument with lifelong consequences for seniors. You need financial and legal advice to understand those consequences and if they are acceptable to you because once you sign on the dotted line it is very difficult to recover from the financial damage. I welcome calls from consumers, consumer advocacy agencies, legal and financial professionals. Sandy Jolley, Reverse Mortgage Suitability and Abuse Expert. firstname.lastname@example.org
If the home still meets you and your mother's needs, leave the reverse in place, especially if all the equity has already been stripped out. Purchasing the home means a taking on mortgage payment. Right now you only have to cover the property taxes and insurance which may already be a struggle based on the income and business situation you mentioned.
Yes, you can purchase for 95% of the appraised value or loan balance, which ever is less. If it's a short sale, have a real estate agent do the work since the lender pays the fees. If there is equity, just go to escrow or ask an agent to do it for reduced fees since you're handing them both sides of the transaction (full disclosure - I'm a real estate agent that works extensively with these types of loans).
I see many of these properties unnecessarily lost, sometimes with hundreds of thousands of dollars of equity because family members don't understand the rules. Frequently I'm told the mortgage company calls only days after the borrower has passed and tells the family members they need to move when in fact they have a year or longer to deal with this. Unfortunately very few agents or even attorneys (and even the folks at the mortgage company) fully understand the rules. Sometimes this requires a call to HUD to straiten things out.
What is CRITICAL is that you have clear title to the home in the event your mother passes or is incapacitated. Opening a probate on a reverse mortgage short sale while the lender starts the foreclosure process is something you really want to avoid. The best cases are where the home has been put into a living trust with a successor trustee (like you). This avoids so many problems it's well worth every penny.
It's a lose lose situation for the surviving spouse or family with a Reverse Mortgage. Yes, only days after the death of your loved one these mortgage companies are ready to reclaim their monies even if they haven't given your loved one a quarter of what the house is worth. Basically you are gambling on your life expectancy. I was not on the Reverse Mortgage. I was too young at the time.These companies are in it for the win. The cards are stacked in their favor. They are no more than piranha. Unfortunately, I am going to be homeless soon. If the house doesn't sell it will go into foreclosure and the only one to gain is the Reverse Mortgage Company. They will auction it off. If they don't auction it for what they at least the amount supposedly available to the signer, the government will pay them the difference. It's a win win for the mortgage company. No for the survivor(s). Advice...stay away from Reverse Mortgages even with all the new laws recently passed.