A legal question and answer line for seniors.
Dear Senior Legal Line:
I have a reverse mortgage on my home. I’m worried that I’m going to lose my home because I’m not living at my home at the moment. I’m rehabilitating in the nursing home after knee surgery. The lady down the hall told me that she had a reverse mortgage and she lost her home because she was in the nursing home. Am I going to lose my home because I have a reverse mortgage and am in the nursing home? Does it matter that I am expected to be able to go back to my house after rehabilitation? — Signed, Patty
Dear Patty:
The short answer is no, you are not going to lose your home because you have a reverse mortgage; and yes, it does matter that you are expected to return home after a short rehabilitation.
A reverse mortgage is a way for a home owner to borrow money from a bank based on the equity they have in the home, their age, and the interest rate. Because you have to be at least 62 years old in order to get a reverse mortgage, the idea is that a reverse mortgage would help older adults who are “house rich but cash poor” have a better quality of life by converting the equity into cash (e.g. a lump sum, monthly income, and/or available credit).
For the purposes of this answer, I assume that there is only one borrower. Please note: as long a co-borrower lives in the home, the reverse mortgage does not have to be repaid.
These loans can be helpful, but before entering into one, a person must give it careful thought because there are obligations under the loan. Generally, the borrower doesn’t have to pay back the loan during their lifetime if the obligations are performed. However, if an obligation is not performed, it can trigger the reverse mortgage’s “due and payable” clause. At that point, if the mortgage is not paid back, you could lose the house through foreclosure.
The borrowers’ obligations include:
- Paying the property taxes and insurance;
- Keeping the house in good repair; and
- Using the house as their primary residence.
In your case, you are merely in the nursing home for rehabilitation and expect to return to your home after rehabilitation, so the reverse mortgage’s due and payable clause should not be triggered. However, you have to be careful because the reverse mortgage contract may also deem that you have permanently moved out if you live for 12 consecutive months in a nursing home or assisted living due to medical reasons.
The reverse mortgage contract may deem that you have permanently moved out if you just decide to live somewhere else for the majority of the year, which could cause problems for snowbirds who spend more than six months away from home.
If the due and payable clause is triggered, you will get a notification letter from the lender. The letter will tell you what obligations have not been performed, if there are any ways you can cure the problem (e.g. pay the taxes and insurance), and that if the problem isn’t cured, the mortgage has to be repaid or foreclosure will start.
You have some rights under law, which include being told your options, but in reality, the only ways to get out of a reverse mortgage is to sell or foreclose. Most reverse mortgages are backed by the federal government, called Home Equity Conversion Mortgages (HECM). The nice thing about HECM reverse mortgages is that if the home is sold for less than the reverse mortgage loan value, you don’t have to pay the difference because the FHA will pay the lender the difference. If you want to keep your home instead of selling it, you have the pay the full loan balance or 95 percent of the home’s appraised value, whichever is less.
Patty, in your situation, because a knee rehabilitation will most likely keep you out of your home for a short time (less than 12 months), you have not permanently left the home and the due and payable clause of the reverse mortgage will not be triggered. The lady down the hall from you in the nursing home may have been in the nursing home for more than 12 consecutive months, with no co-borrower remaining in her home, triggering her reverse mortgage to be paid or foreclosed.
This column is written by the Senior Citizens’ Law Project. It is not meant to give complete answers to individual questions. If you are 60 years of age or older and live within the Minnesota Arrowhead Region, you may contact us with questions for legal help by writing to: Senior Citizens’ Law Project, Legal Aid Service of Northeastern Minnesota, 302 Ordean Bldg., Duluth, MN 55802. Include a phone number and return address. To view previous articles, go to www.lasnem.org.
