Be Wary of Reverse Mortgage Folklore
I received a phone call from a local real estate professional. She called in response to an ad I placed detailing how seniors can buy a home using the reverse mortgage to fund the purchase.
She was sincerely interested in the program, but first decided to vent with an amazing story of pain, agony and just downright horror relating to the reverse mortgage.
First things first... The rule is you must complete this article. You can't just read what happened and then stop before I can explain. We can't have you running about telling everyone else how horrible the reverse mortgage is.
The father of a friend of a friend of the realtor who told me (see the problem already?) had a reverse mortgage on his home prior to passing away. After his death the home was willed to the FOAFOAR (friend of a friend of a realtor).
It's a bit of a rareity but the home was valued less than the mortgage amount. It can happen with drastically falling values. Naturally, when her father passed away the mortgage company called the entire note due.
After selling the property, the FOAFOAR still had to come up with an additional $40,000 to repay the bank the difference.
Now, I have doubts about the validity of this story. I have doubts about any story told through a chain of three people, but look.... HUD prohibits mortgage companies from doing what the FOAROAR said it did. The term is "non-recourse". It means a mortgage company cannot come after the borrower or heirs for a deficiency.
If a deficiency exists at the time of repayment of the reverse mortgage, either the borrower or heirs go through the same drill.
The mortgage company will require a real estate agent to list and market the property for sale. In the process the realtor will furnish comparable properties so the mortgage company knows the property will be sold at a fair market value. Eventually the home is sold and the lender is repaid the sale price less closing costs.
HUD makes the rules and the lender is entitled only to these proceeds from the sale of the home. If the loan balance exceeds the net proceeds, it's tough cookies for the lender. They have to write it off and go on their merry way.
A bunch of folklore is flying about concerning the reverse mortgage. You may have a financial obstacle in need of an answer. The reverse mortgage may or may not be a great tool for you. Make sure you have real facts at your disposal before making a decision.
She was sincerely interested in the program, but first decided to vent with an amazing story of pain, agony and just downright horror relating to the reverse mortgage.
First things first... The rule is you must complete this article. You can't just read what happened and then stop before I can explain. We can't have you running about telling everyone else how horrible the reverse mortgage is.
The father of a friend of a friend of the realtor who told me (see the problem already?) had a reverse mortgage on his home prior to passing away. After his death the home was willed to the FOAFOAR (friend of a friend of a realtor).
It's a bit of a rareity but the home was valued less than the mortgage amount. It can happen with drastically falling values. Naturally, when her father passed away the mortgage company called the entire note due.
After selling the property, the FOAFOAR still had to come up with an additional $40,000 to repay the bank the difference.
Now, I have doubts about the validity of this story. I have doubts about any story told through a chain of three people, but look.... HUD prohibits mortgage companies from doing what the FOAROAR said it did. The term is "non-recourse". It means a mortgage company cannot come after the borrower or heirs for a deficiency.
If a deficiency exists at the time of repayment of the reverse mortgage, either the borrower or heirs go through the same drill.
The mortgage company will require a real estate agent to list and market the property for sale. In the process the realtor will furnish comparable properties so the mortgage company knows the property will be sold at a fair market value. Eventually the home is sold and the lender is repaid the sale price less closing costs.
HUD makes the rules and the lender is entitled only to these proceeds from the sale of the home. If the loan balance exceeds the net proceeds, it's tough cookies for the lender. They have to write it off and go on their merry way.
A bunch of folklore is flying about concerning the reverse mortgage. You may have a financial obstacle in need of an answer. The reverse mortgage may or may not be a great tool for you. Make sure you have real facts at your disposal before making a decision.
About the Author:
Get 6 more myths revealed plus five monster blunders at the Reverse Mortgage Texas Guide. For great questions for your lender try Five Questions you must ask your lender prior to moving forward with a Texas Reverse Mortgage.
posted by Credit Counseling at
5:23 AM
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