An equity conversion mortgage can be a good idea. However, there can also be a dark side.
Unexpected circumstances can turn a reverse mortgage into a very difficult situation, according to the Union Leader story in “Silver Linings: Reverse mortgages for seniors–Lifestyle Maintenance or money pit?”
Evelyn Boice shared the story of her experiences with a reverse mortgage, in the article which began with a flood at Evelyn’s retirement home which was caused by burst pipes. This led to a financial disaster. She is 83 and didn’t expect to spend her last years living in an apartment attached to her daughter’s home. She’s got a chair, a TV, bed and kitchen stool. Everything she owned was destroyed in the flood.
She does have a lot of notebooks—stacks of confusing and incomplete financial statements loaded with indecipherable charges, including a $35 charge every time she calls the reverse mortgage company for help. She’s got threatening letters about being in default, while she waits for the mortgage lender to release an insurance check for $48,651 that she would use to salvage what’s left of her home.
When she called the insurance company, she heard an awful comment from someone at the office: “Why doesn’t she just hurry up and die?”
Boice took out a reverse mortgage in 2007 and used $50,000 of a $200,000 loan to make emergency repairs after Hurricane Wilma struck her home, blowing out windows and doors. However, the danger comes when homeowners don’t have enough money to live on and maintain their homes, make essential repairs or pay for insurance and property taxes. That’s non-negotiable with a reverse mortgage. Any kind of default can lead to a cascade of new expenses for appraisals, property inspections and legal work to protect the lender. The lender has all the power and all the fine print.
Her case is an extreme example of what can go wrong. In 12 years, an unbelievable amount of paperwork has accumulated. One document shows that she owes $265,000, a number that keeps increasing. The monthly interest charges range from $100 to more than $1,000, and lump sums of more than $2,500, reflecting property taxes.
Boice is getting some help from the Claremont office of New Hampshire Legal Assistance. They are helping her work through the issue, but it may only come in the form of tax deferment or reductions.
Before taking out a reverse mortgage, seniors should look at all available options and should consult with an attorney to review the contract.
Reference: Union Leader (Feb. 2, 2019) “Silver Linings: Reverse mortgages for seniors–Lifestyle Maintenance or money pit?”