As Philadelphia bankruptcy and foreclosure defense lawyers we keep careful watch over legislative changes which may impact our clients.
One of the types of foreclosure defense cases we receive involves reverse mortgages. You may have seen these mortgages advertised on television. They’re marketed primarily to the elderly, people who typically have a great deal of equity, maybe even full equity.
They can also be very dangerous to individuals who don’t understand exactly what they’re getting into, or who live on limited income.
What is a reverse mortgage?
If you are 62 years or older a reverse mortgage is a program which lets you take out a loan on the equity of your home. The loan is usually paid to you in monthly installments, just as you made your mortgage payments over the years, though you can take a lump sum of cash.
For many people, the equity in their home represents one of the only types of savings they have. Many retirees use this program to supplement social security income or other retirement income.
So long as the borrower continues to live in the home they don’t have to “pay back” the loan. The loan is usually paid when the home is vacated and sold.
The National Reverse Mortgage Lenders Association has put together a guide, you’ll find it here.
What are the dangers of a reverse mortgage?
Reverse mortgages are marketed as easy money, but they do carry some risk. For one thing, quite a bit of your equity gets eaten up in closing costs and fees.
For another, they can expose a home that is paid off to the danger of foreclosure, even though you’re not making payments directly to a lender. Fail to keep the house maintained to the standards of your loan agreement or fail to pay taxes, and the bank will come after your home.
How might the new bill help reverse mortgage borrowers?
The proposed bill addresses the property tax provisos of Philadelphia reverse mortgages. If the bill passes, residents who are in a payment agreement for their property taxes and are not delinquent may not be foreclosed on. At the moment a payment plan may not be enough to keep banks satisfied.
“I know all too well the scourge that reverse mortgages have been on certain neighborhoods in the city. Unfortunately, it has been quite common for reverse mortgage lenders to swoop in and pay off any remaining real estate tax balance of homeowners even if they are in a payment plan and not delinquent, and then use this as an impetus to foreclose on these homeowners,” [Councilwoman Cherelle] Parker said. –Mortgage Professional Magazine
Until the bill passes you are still vulnerable if you are in a reverse mortgage. If your lender is trying to foreclose on your home call Sadek and Cooper right away for a free consultation. We will be happy to discuss what we can do to save your home.