What You Need to Know About Reverse Mortgages in New York
Many New York seniors struggle to make ends meet. When Social Security and private pension benefits are not enough to cover daily living expenses, those seniors who own their home may turn to a home equity conversion mortgage (HECM), more commonly known as a “reverse mortgage.” This is a special type of loan available to homeowners over the age of 62 who have equity in their homes.
Basically, a reverse mortgage is a loan secured by the borrower’s home. But unlike a traditional mortgage, the borrower does not make monthly payments on a HECM. Instead, the balance of the loan–with interest–becomes due when the borrower dies or decides to move out of the property.
Another critical difference between a traditional mortgage and a HECM is that with the former, the lender typically escrows expenses necessary to maintain the property, such as property taxes and insurance. With a reverse mortgage, however, the borrower normally still has to pay these expenses on their own. If they fail to do so, the HECM lender may step in, pay the expenses, and attempt to foreclose on the property.
In 2018, New York State adopted legislation requiring reverse mortgage lenders to provide a 90-day pre-foreclosure notice before a lender can initiate legal action against a borrower. The notice must be in a certain standardized typeface–no small print–and include a list of housing counseling agencies who can assist the borrower in avoiding foreclosure. This notice requirement does not apply if the borrower has already filed for bankruptcy or is no longer using the property as their primary residence.
How a Reverse Mortgage Affects Your Heirs and Estate Planning
Reverse mortgages can also have a significant impact on an elderly homeowner’s estate planning. When the borrower dies, the HECM lender usually sends an appraiser to assess the home’s current fair market value. The borrower’s estate is then liable for 95 percent of the appraised value or the full balance of the reverse mortgage, whichever is lower.
So if the homeowner’s heirs wish to keep the property, they need to come up with the appropriate amount of money to pay off the lender. Otherwise, the estate has to sell the house and give the sale proceeds to the lender. Note that since 2012, government regulations provide “negative equity” protections for all federally insured reverse mortgages. This means that if the property sells for less than the value of the loan, the lender cannot try to recover the difference from the estate or the borrower’s heirs.
Speak with a Putnam County Elder Law Attorney Today
Applying for a reverse mortgage is not a decision any elderly homeowner should make lightly. There are significant legal and financial risks. And unfortunately, there are also many unscrupulous individuals who may try and take advantage of a vulnerable homeowner. That is why it is important to consult with a qualified Putnam County elder law attorney who can provide you with independent, professional advice.
Contact Meyer & Spencer, PC, today to schedule an appointment so we can sit down and learn more about your asset protection and estate planning needs.