Reverse mortgages have been an appealing option for many aged homeowners, because they provide access to the equity in the home when liquid assets are getting used up. These Home Equity Conversion mortgages (HECM for short) need not be repaid until the homeowner dies or vacates the premises. The borrower has to be able to pay the ongoing basic property maintenance charges — such as condo fees, real estate taxes and homeowner’s insurance — from their monthly income, and has to occupy the premises. Under the terms of the reverse mortgage loan documents, If the borrower fails to pay the maintenance obligations, the lender covers those expenses, but that’s considered a default, the loan can be called, and the property can be foreclosed. Similarly, if the borrower/homeowner vacates the premises and doesn’t list the property for sale after 6 months, the loan can be foreclosed.
This raises a few issues during the current crisis. A homeowner/borrower might temporarily vacate the premises to stay with family members, and this temporary stay might extend for months. Other homeowner/borrowers may have depended upon kin to help cover general monthly expenses to live in the house, and if those kin lose their jobs and can no longer help out, a low income homeowner/borrower may default on their basic property charge obligations. Upon request, lenders provided a payment plan option if the homeowner had defaulted on up to $5,000, but not beyond that. Borrowers should be vigilant to maintain necessary proofs and arrange for payment of expenses if at all possible. There are some protections, though, that are provided by the federal CARES Act — Coronavirus Aid, Relief and Economic Security Act.. Here are some of them.
1.60-day moratorium on foreclosures that are already in process on federally-backed reverse mortgages, which is set to expire on May 17th.. This moratorium doesn’t apply of the property was abandoned (by an executor of the former borrower’s estate, for example) or vacant (such as, if the homeowner vacated the premises and there’s no spouse on the premises). If the foreclosure process has already started, and the loan is now due and payable or a deferral has been granted, the lender has the discretion to extend the foreclosure process for six months or longer with HUD approval.
2. A borrower whose loan is in default or is at risk of foreclosure can request a six-month delay on calling the loan until October 1, 2020. The borrower must contact the loan servicer or lender to make this request, and later can seek HUD approval for an extra six month extension. Late charges, penalties and fees during this time must be waived. Payment obligations can be extended six months.
3. For borrowers in arrears, lenders can provide a repayment plan even if the amount owed exceeds $5,000. Borrowers have an extra six months to make this request.
5. An “at risk extension” of the foreclosure time frame is available upon request to a Borrower who is 80 years or older, if they meet certain necessary conditions. HUD must approve such an extension, and it is only good for one year — it must be requested again each year. Examples include suffering from a long-term physical disability or terminal illness, or experiencing a unique occupancy need caused by circumstances beyond their control.
4. Previously we wrote about protections for the non-borrower spouse to remain in the home if the borrower spouse dies. Even if the property is in foreclosure, the lender can offer the MOE process to the surviving spouse, who still must be eligible, bring any delinquencies up to date, and meet the qualifying criteria.5. Proof of occupancy is typically certified on an annual basis to the Lender in writing. During the emergency, proof can be submitted via an email or verbal certification from the borrower. The borrower or surviving spouse should still hold onto all available proof of their occupancy in case it is needed.
Keep in mind that for modest problems — such as a single missed payment of the required property charges, or arrears of less than $2,000, the HUD lenders have the ability to negotiate a payment plan not to exceed 12 months and this may be useful to the borrower in the right set of circumstances. Also, if the property has increased in value, it might be viable to refinance the reverse mortgage if there’s sufficient equity to support a replacement loan.
Reverse mortgages are one tool in the elder care planner’s tool box. Call us for advice and assistance with your long term care planning … 732-382-6070