Daily Archives: July 4, 2014

Bankruptcy And Reverse Mortgages: Two

Continuing a theme, looking at bankruptcy Kurt OKeefe St.ClairShoresBankruptcyAttorney

versus reverse mortgage options.

Once again, relying largely on my friend Tara Tuomey’s work, cited in the link above.

One the government gets into an area, it tends to

dominate that area.

So, in 1988, the feds got in the business of insuring reverse mortgages.

Once you do that, you are setting the standard.  Of course, mortgage companies are free, subject to state laws, to do whatever reverse mortgages they want.

So, the fed guidelines are 62 years age minimum, free and clear home, or small liens.

As one of my clients found out, “adequate” counseling is also mandatory.

Reminiscent of the mortgage crisis, still no income or credit score requirements.

Which at least makes sense in this context, as, there are no payments and the mortgage is not due until the house is empty.  Basically.

Although, you can get mixed and matched terms, some lump sum now, a creditline up to a higher amount, and/or monthly payments, from the mortgage company to the homeowner.

Of course, the mortgage company calculates when they will get their money back; when the homeowner will die or have to move out.

The interest rate is, as always, based on how long they have to wait for their money.

GOOD REASONS TO GET REVERSE MORTGAGE

Eliminating your mortgage.

The monthly payments squeeze out what you need for food or medicine or whatever.

You get the reverse mortgage, which is due when you move out or die.

In the meantime, you can afford to stay in your home.

YOU STILL HAVE TO PAY THE TAXES AND INSURANCE.

Keeping the home insured will be a required to get the reverse mortgage.

As of two years ago, almost 10% of reverse mortgages were in default for failure to keep the taxes and insurance up to date.

In bankruptcy you cannot change the terms of a first mortgage on your residence.

If you have debt that is NOT dischargeable in a bankruptcy, like some taxes, student loans, a reverse mortgage could make sense.

REVERSE MORTGAGE AND BANKRUPTCY?

You could file a Chapter 13 bankruptcy to stop foreclosure and catch up on back taxes and insurance, which would be paid by the mortgage company to keep from losing their collateral.

What about your heirs?

Well, they probably do NOT live in the home, so they are not bound by the bankruptcy restriction against modifying the terms of the first mortgage on a residence.

Being that the entire mortgage balance is due, it would have to be paid off during the Chapter 13 bankruptcy plan, three to five years.

But bankruptcy courts have held that if the entire balance is due BEFORE a bankruptcy case is filed, you can use a Chapter 13 bankruptcy if you pay off the complete mortgage by the end of the plan.

WHAT IF YOU WANT TO FILE CHAPTER 7 BANKRUPTCY FOR OTHER REASONS??

Contact an expert bankruptcy attorney with this one.

You may have a bunch of credit card or other debt that you cannot pay.

If so, normal bankruptcy analysis applies:  how much equity is in the home?

What are your monthly income and living expenses?

It might make sense, it might not.

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