Question: My neighbor, who is 81 years old, took out a reverse mortgage a couple of years ago. She is mentally sharp but doesn't have experience with issues of personal finance. She mentioned that she's been unable to pay for her house insurance or property taxes and fears that she will be "put out on the street." What can she do?
Answer: Reverse mortgages permit homeowners who are 62 or older to draw upon their home equity through a line of credit, sum payment or a monthly check. The loan is due with interest when the borrower dies, moves from the homes or sells it.
According to the Federal Housing Administration, of the 600,000 reverse mortgages, almost 10 percent are delinquent. This is 2 percent higher than two years ago.
Defaults occur when the borrower does not pay the charges associated with the property, such as property taxes and homeowner's insurance. Many reverse mortgage borrowers took as much cash as possible in a lump sum payment when they obtained the loan without considering the cash they will need in later years to pay the taxes, insurance and maintenance or repairs necessary to keep the property in a livable condition.
There are many sources for counseling and services available for people who find themselves in the same situation as your neighbor. And lenders are now required to inform borrowers who become delinquent before they can initiate foreclosure.
The first option is to visit the web site at www.BenefitsCheckUp.org. This is a database of 2,000 government and nonprofit benefit programs for those in difficult financial situations. Information about obtaining help can also be found by calling the National Council on Aging at 800-510-0301. It is one of the eight counseling organizations approved by HUD.
Counselors in the organizations can help your neighbor find affordable insurance, set up automatic payments for a negotiated repayment plan with her lender and generally advise her about what to do. At least she will have the guidance and not feel as if she is alone in solving her problem.
The FHA recently discontinued some of the fixed rate reverse mortgages with the highest lump sum payments. This should result in fewer homeowners finding themselves in the same situation as your neighbor.
Seeking the advice of an attorney is also an option she might consider.
Attorney Sylvia Heldreth is a certified specialist in real estate law. Her office is located at 1215 Miramar St., in Cape Coral.
This article is not intended as specific legal advice and is based upon facts that change from time to time. Individuals should seek legal counsel before acting upon any matter involving the law.