For some older homeowners, reverse mortgages sound inviting; they represent a means of securing home equity loans without making monthly mortgage payments. In theory, it appears to be a very good idea for retired citizens who need extra cash. Unfortunately, some reverse mortgages may actually be disastrous.
Not sure what we mean? Let’s take a look at a local news story. We’ll start with a description of the person who signed up for a reverse mortgage. She is ninety years old. She has lived in the same home for more than sixty years. Many memories were made in this particular residence. The homeowner planned to make this address her last. Yet, there’s a foreclosure action. The worst? Steps to evict her from the premises have ensued.
Wait. Can this possibly be true? After all, reverse mortgages don’t require monthly payments. How could this happen?
In this particular situation, the homeowner initially took out the reverse mortgage to help her keep up with her property taxes. Only the money ran out, and she needed more cash. The homeowner’s attempt to contact the original lender proved futile. When the woman’s son contacted government officials thinking something was not right, they advised her there might be cause for investigation. The problem? It will not stop the eviction process.
So, what do you actually know about reverse mortgages? Do they necessarily have to be catastrophic?
The Law and Reverse Mortgages
In New Jersey, NJSA 46:10B-18 contains the law regarding reverse mortgages. This particular statute also covers reverse annuities. Here is a breakdown of some crucial information:
- The reverse mortgage must be a first property lien
- The person seeking the reverse mortgage must be at least 60 years old
- The Commissioner of Banking may raise or lower the eligibility age
- Only seventy percent of the property value may be mortgaged
It is possible for the mortgagee to enter into a subsequent reverse mortgage agreement. According to New Jersey law, there must be evidence that the property has not significantly depreciated in value since the initial loan. The new reverse mortgage may not exceed ninety percent of the unencumbered portion of the property.
How Reverse Mortgages Work
The appeal of reverse mortgages is that borrowers are not required to make payments. To qualify for the loan, there must be equity. However, creditworthiness is not necessarily an issue when applying for a reverse mortgage. Prospective mortgagees must be able to show proof that they can keep up with homeowners’ insurance and property taxes. Of course, if this is the purpose of the reverse mortgage, it should be indicated to the lender.
Although many use reverse mortgage proceeds to pay for property taxes and insurance, there are no restrictions concerning use of the money. Some may find that the money allows them to have a more comfortable lifestyle.
The payoff for the reverse mortgage becomes due when the residence is sold. It must also be paid when the homeowner dies or permanently moves from the premises.
For some, reverse mortgages may not be a good idea. It is important to speak with an experienced real estate attorney before entering into a reverse mortgage agreement.
Are you under the impression that a reverse mortgage might help you make ends meet? Have you inherited a home that is has a lien as a result of one? Contact the Law Offices of Lawrence M. Centanni for legal advice. Learn your options before you proceed.