Many elderly Florida residents find themselves strapped for cash in their later years. One way to generate a steady source of income is through a home equity conversion mortgage (HECM), more commonly known as a "reverse mortgage." If you are considering a reverse mortgage, it is a good idea to consult with an experienced Florida elder law lawyer first. A reverse mortgage can have significant legal consequences for you, your spouse, and your future estate.
Most of us are familiar with the concept of a mortgage. It is a loan secured by real property that is paid back over an extended period of time, usually 30 years. Borrowers make monthly payments each month on the principal and interest of the loan.
A reverse mortgage is similar in that it is also a loan secured by the borrower's home. But unlike a traditional mortgage, a borrower does not have to make monthly payments while they are still alive and living in the house. In fact, the lender typically makes monthly payments to the borrower. When the borrower dies-or chooses to sell the house-the full amount of the reverse mortgage is due.
Reverse mortgages are insured and regulated by the federal government. Under U.S. Department of Housing and Urban Development (HUD) regulations, a borrower must be at least 62 years old. HUD also limits the total amount of a reverse mortgage loan. A borrower may also only obtain a reverse mortgage for a principal residence they own outright of where the original mortgage has been "paid-down a considerable amount."
Another recent HUD regulation also helps surviving spouses stay in their homes even after the other spouse, who is the borrower on a reverse mortgage, passes away. The Florida Third District Court of Appeals recently explained how this regulation works in practice.
In this case, a married couple owned a home, and the husband took out a reverse mortgage. The wife did not sign the actual promissory note.
After the husband died, the reverse mortgage lender moved to foreclose on the house. Since the husband was the "sole borrower" on the note, the lender alleged, the loan became due upon his death. A judge agreed and issued a foreclosure judgment.
But the Third District reversed. Among other reasons, the appeals court noted that HUD regulations expressly protected the wife from foreclosure in this type of situation. As a condition of insuring reverse mortgages, HUD requires lenders to "defer" repayment of the loan "until the homeowner's death."
Note the regulation says "homeowner" and not "borrower." This is critical, because HUD further defines "homeowner" as including the "spouse of a homeowner." Since the lender hear acknowledged that its loan was insured by HUD, the Third District said the "plain language" of federal law protects the wife from foreclosure.
Reverse mortgages raise a number of other potential legal issues. For example, a reverse mortgage can affect a person's eligibility for Medicaid. The need to repay a mortgage after death also has a significant impact on the borrower's estate planning. For all these reasons it is important to seek out legal advice before you sign a reverse mortgage note. Contact the Law Office of K. Hunter Goff, P.A., at (866) 409-1647 to schedule an appointment today with an experienced Orlando elder law attorney.