CARES Act gives 6 month moratorium on reverse mortgage foreclosures

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.

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.
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.  
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 

 

Start your long term care planning before the reverse mortgage is used up

I have encountered the following crisis too many times. A frail elder is living at home, and since the home is safe and nice, is happily aging in place. Once the homeowner reaches the point of hiring a home health aide, they start using  up their savings. At that point, they  place a reverse mortgage on the home. This provides a significant amount of cash that can be drawn out month after month to enable her to stay at home. It can be drawn down gradually like a line of creditSo far so good. 

Someone needs to be minding the store to make sure that planning for the next phase begins well before the homeowner has exhausted the cash that’s available through the reverse mortgage.If the homeowner starts to develop Alzheimers dementia and has no one standing by to help, there can be a real crisis when the funds run out.

I have had several cases where the homeowner required 24/7 care, but the homeowner didn’t ask for help from their power of attorney, or the agent under power of attorney didn’t realize soon enough that the reverse mortgage was exhausted.  There was no money to pay for an aide, and even an MLTSS/ Medicaid application could take months to process and wouldn’t provide 24/7 care at home. To get into a nursing home would be practically impossible at that point. Fortunately, we were able to work things out. But it was a major crisis for all involved, and totally avoidable.

Careful planning can prevent a crisis!

Call us about elder care planning and aging in place … 732-382-6070

Reverse Mortgages – useful, but not the only answer to help you stay home

Reverse mortgages are non-recourse loans in which the lender provides funds for the homeowner’s use now, but unlike a conventional mortgage, the loan doesn’t have to be repaid until the homeowner dies or vacates the premises. At that point, the property is sold and the loan is repaid along with the deferred costs and points. AARP has an excellent, easy-to-understand booklet about the pros and cons of reverse mortgages. And this link can help you sample some calculations to see the costs of borrowing and the amounts available in different regions of the country at different ages for the borrower. Any existing loan needs to be paid off with the reverse mortgage proceeds, because these loans need to be in the first position. The federal government insures the homeowner/borrower against the risk that the lender goes out of business, and insures the lender against the risk that the property loses so much value that at the time for payoff, the proceeds of sale are inadequate.

If you run through some sample calculations you will see that the older the homeowner is, the higher the amount that can be borrowed (as a percentage of the equity). If the home has a small value and the homeowner is in his early 70’s with little in the way of savings, borrowing the equity could leave the homeowner with a very thin margin of equity as a cushion. The cost of reverse mortgages is clearly higher than the cost of a conventional home equity line of credit or mortgage. The problem is that those loans are underwritten based on the borrower’s income. So they are often not available for elderly borrowers on limited fixed incomes.

For a homeowner who needs care at home and is running out of money, a combination of Medicaid benefits and reverse mortgage can stretch the available dollars and may provide greater protection than just the loan itself – enabling the person to remain home longer.

Careful planning requires advance consideration of all of the available sources for payment and services. Call us for legal advice on elder care planning …. 732-382-6070

Guardians can’t sell real property without court approval

If you’ve been appointed as the Guardian of the Property (Guardian of the estate) for an incapacitated person, you probably know that you have a lot of authority and power regarding the ward’s assets. While you do have to file an annual accounting in New Jersey as specified in the Judgment appointing Guardian (NJSA 3B:12-42), in general the New Jersey probate court does not micromanage the guardianship (unlike some other states). The guardian is expected to exercise prudent judgment in deciding what and when to spend, and how to allocate investments, all in the ward’s best interests (NJSA 3B:12-43, 44 and 45).

There are specific rules regarding real estate– NJSA 3B:12-49 and 12-59, and N.J. R. 4:94-1 to 7. If a guardian needs to sell or mortgage or purchase real property, a Verified Complaint must be filed with the Superior Court, Chancery Division, Probate Part. For a request to sell, the Complaint should be supported by proofs concerning the assets, income and budget needs of the ward, need for the transaction, value of the property, and proposed listing agreement.need for the transaction. Some counties will not only require a proceeding to get permission to sell, but a second proceeding to confirm the contract sale price. Similar appropriate proofs are needed if the guardian wishes to purchase property for the ward or his family, or wishes to place or refinance a mortgage on it to obtain cash, such as using a reverse mortgage when the ward is starting to run out of money but could safely remain in the home.

The process can take months, so it’s important not tyo wait until the last minute. Even if we can pull together the Complaint and proofs quickly, it may not be heard by a court for months. A weather mishap or other emergency can cause further delays. And sometimes a family member shows up at the last minute and throws sand in the gears. I had a case once where my client was the guardian and her ward owned a property that his daughter lived in. The daughter had been paying the taxes and insurance and utilities for a few years in place of rent, but then stopped paying, causing obvious problems. The ward was in a nursing home, applying for Medicaid, and Medicaid rules required the property to be listed for sale. We filed a petition for court permission to sell. Everyone was served. A few days before the court date, the daughter wrote a letter objecting to the sale because she wanted to stay there. As a result, the court denied the petition and placed it on the contested list, a process that can go on for many, many months. The property was now at risk of being lost to a tax sale because no one had any money to pay the taxes. It was a huge problem.

Another example involves reverse mortgages to pay for home care. Along with the delay in the court system, it can take several months administratively to close on a reverse mortgage. So the guardian shouldn’t wait until the money is running out before starting the process — how will the guardian keep paying for the home care?

As I like to say, careful planning can prevent a crisis.

Call us for advice and representation on guardianship issues throughout New Jersey… 732-382-6070

Elder Care Planning: Building your Team

Tuesday evening I was privileged to participate in a lively panel at the JCC in Scotch Plains that was answering  questions on a wide range of elder care/ elder law issues. The panelists were terrific — Michele Morandi, D.O., geriatric physician based in Union and affiliated with Center for Hope Hospice https://centerforhope.com/ ; Chris Kaiser, MSW, LCSW, Director of the Older Adult Services at Jewish Family Services  http://jfscentralnj.org/services-older-adult.php ; Dale Ofei-Ayisi, MA, of the Rutgers U. COPSA dementia assessment program in Edison    http://ubhc.rutgers.edu/services/geriatric/  and Donna Farrell of the Union County Division on Aging. http://ucnj.org/government/human-services/division-of-the-aging/senior-services/

There were certain major themes that crossed the lines from medical to legal to social services: invest the time to plan ahead; failure to plan can cause great expense and trouble at a time of crisis; a thorough medical evaluation should be part of the dementia assessment process; the caring family members need to be practical and objective to help an aging person deal with their increasing limitations; there are many governmental services available but none that pay for 24/7 care in the home.

At the end of the program, I said that although issues are intertwined, an aging person needs a team for advice. The elder law attorney evaluates the Medicaid eligibility and designs an estate plan, creates the documents to implement a plan, and pursues any needed court proceedings. The accountant/CPA prepares the income taxes and evaluates & advise you on tax issues. The life insurance advisor gets you the insurance you may need to fund special needs trusts for disabled family members or to otherwise take care of those left behind. The reverse mortgage specialist gets you access to your home equity when the liquid assets are gone. The long term care insurance specialist helps you in that middle 40 – 70 age bracket so you have insurance to pay for home health care in the event of dementia or a catastrophe. The physician follows the patient over time and manages the health issues. The dementia assessment specialist can help you identify the nature of the dementia (diagnosis) so it can be understood and properly handled. The financial advisor guides your decisions about investments and use of specific assets. And the geriatric care manager (GCM) can assess the safety of your home and oversee/coordinate the delivery of care for you in your home. Then of course, you need close family or friends to be there for you as well, whether as your fiduciaries (power of attorney etc) or caregivers or companions.

There may even be a need for more help: a Medicare gap policy/ choice plan specialist; a medicare appeals specialist; an interior designer who is familiar with universal design to keep your house safe for you. The bottom line is, you need a team, and careful planning can prevent a crisis

Call for a consultation to start planning for your elder care legal needs: 732-382-6070