By Lee Bruns
- Foreclosing on a reverse mortgage may be easier than foreclosing on a standard mortgage.
Remember that bit from the last post about “your home must meet maintenance and other conditions that vary by the mortgage and mortgage holder.” Failure to maintain your home to the mortgage company’s standards can result in foreclosure, regardless of why you can’t maintain the home. I know of one homeowner who was required to spend the entire proceeds of their reverse mortgage on home improvements. Then they couldn’t keep up with their HOA fees and taxes. The mortgage company was quick to step in and foreclose on the house, even though the taxing authority would not have taken the home of someone over 65.
Also remember that the maintenance standards are defined by the mortgage company. That means the mortgage company is who decides whether or not the home is properly maintained.
- Then, there’s that thing about sufficient equity. Every year you live in the house, the amount you owe the mortgage company increases. This increase isn’t usually a problem in an appreciating market, but what happens during a downturn? When you don’t have sufficient equity, the mortgage company can take the house to protect its assets.
- And finally, at least one of the parties to the reverse mortgage is required to live in the house. That means if one partner dies and the other needs to go into assisted living for more than a designated time (usually six months), the mortgage company has the right to foreclose on the home. So you can’t rely on the income from the reverse mortgage to help cover the costs of assisted living.
But what about all that stuff about reverse mortgages being government-backed? Doesn’t the government protect you from foreclosure?
The short answer is, “Not really.” Most of the guarantees built into the reverse mortgage program actually protect the lender, not the borrower. The strongest protection you have is that you must be able to financially qualify for the reverse mortgage.