newjerseynewsroom.com

GERALD J. ROBINSON

NEWJERSEYNEWSROOM.COM

Recent reports disclose an unanticipated trap for seniors who use reverse mortgages to tap the equity in their homes to boost cash flow in their retirement years. Their unsuspecting widowed spouses may be foreclosed out of their homes.

It’s a fluke, but it’s dangerous.

We’ve previously reported on the significant benefits that reverse mortgages can provide. Especially for older individuals who intend to remain in their homes for the rest of their lives, the reverse mortgage may be the ideal way to deal with a cash shortfall. It’s especially attractive because it can provide monthly payments to the homeowner for life and does not have to be paid off until the owner’s death or when the home is sold.

But there’s a rub for married couples where only one of the spouses owns the home and takes out the reverse mortgage. When the owner-spouse dies and the home passes to the surviving spouse, the surviving spouse can be foreclosed out of the home unless the surviving spouse pays off the reverse mortgage.

It’s reported that the seniors’ advocacy group, AARP, is suing the Housing and Urban Development Department over reverse mortgages that have backfired. Under HUD’s rules, lenders are demanding that newly widowed spouses who are not on the mortgage that want to stay in their home must pay off the balance of their reverse mortgages -- even when their homes are underwater because the amount of the mortgage exceeds the value of the home. Homeowners who obtained reverse mortgages didn’t expect this -- they expected that they and their surviving spouses could stay in their homes for life.

If the surviving spouse homeowner can’t pay the loan off, the lender can foreclose.

The problem arises when the names of both spouses are not on the mortgage. For example, where a husband owns the home, takes out the reverse mortgage and dies leaving a surviving wife, the mortgage becomes immediately due and the wife has no right to continue to receive payments under the reverse mortgage and remain in the home.

Often only one spouse’s name is on the reverse mortgage, usually the older spouse, because a larger loan or larger payments can be received if only one life is the measuring period for the loan and that life is the life of the older spouse.

This tactic usually is used without an understanding of the jeopardy it creates for the surviving spouse whose name is not on the mortgage.

Another trap to avoid is getting a reverse mortgage to secure funds to purchase an annuity or other financial product hyped by a smooth talking salesman. Hustlers are out there who seek to get seniors to convert the equity in their home through a reverse mortgage to put the money into high fee annuities or other high commission but questionable financial products that serve the salesman’s interests but don’t serve the homeowners best interest.

Reverse mortgages are not a do-it-yourself undertaking and those contemplating obtaining a reverse mortgage should first obtain the counsel of a qualified professional, such as an elder law attorney with reverse mortgage expertise. Before going to a counselor it would be wise to get some background on the intricacies of reverse mortgages. You can choose from a collection of books on the subject at Amazon.com by searching under “Reverse Mortgages.”

Gerald J. Robinson can be reached at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .