Can a reverse mortgage present a problem for an heir?

On behalf of Scaringi Law posted in Estate Planning on Saturday, December 5, 2015.

Estate planning can simplify not only the grantor's plans, but also the procedure for how loved ones will claim inherited assets. Take the case of reverse mortgages. This type of mortgage, officially called a Home Equity Conversion Mortgage, provides an income source to homeowners who are 62 years of age or older and have some equity in their homes. This option might be appealing to an individual who has little retirement savings but substantial equity in his or her home.

Is there a catch? A borrower that lives longer than expected might find that the loan ends up costing more than the value of the house. In addition, after the borrower dies, problems may arise for any heirs that inherit the house.

A beneficiary might expect to assume the mortgage of a home that was left to him or her. Yet a reverse mortgage is different: the borrower's death triggers a payment of either the entire loan balance or 95 percent of the home's appraised value, whichever is less. The loan is not transferable, which means that heirs cannot take over a reverse mortgage. In a recent profile, the servicer of a reverse mortgage was uncooperative with the heir, apparently preferring foreclosure.

As a law firm that focuses on estate planning, we know that protecting one's investments requires informed decisions about real estate, loans and financial obligations. In fact, the practice areas of real estate, elder law and estate planning might overlap. Fortunately, our law firm focuses on all three areas. That means we can help clients develop a comprehensive plan for their future.

Source: Washington Post, "Reverse mortgages require a lot of forward thinking before committing," Marcie Geffner and Kathy Orton, Dec. 3, 2015