Many seniors have considered a reverse mortgage to help support them in their golden years, but are not aware of the pitfalls associated with this type of loan.  You may even be surprised to learn that the rules have changed, leaving some elderly homeowners at risk of losing their homes.

Reverse mortgages are supposed to protect seniors from economic hardship, paying older homeowners a regular sum against their property’s equity.  Now, due to a 2008 rule change by the Department of Housing and Urban Development, surviving spouses can be excluded, leaving them at risk of being displaced due to foreclosure upon the death of their spouse.  AARP, the seniors’ organization, recently filed suit against HUD, asserting that recent policy changes are pushing older unsuspecting homeowners into foreclosure.

Reverse mortgages were intended to be non-recourse loans.  This means that the most a borrower can lose is the house itself, even if the value of the property goes down.   In this market, nearly 25% of all homes with mortgages are worth less than they owe, making them nearly impossible to sell.

Lenders sometimes encourage only the elder member of a couple to put his or her name on the mortgage because then the payout is greater.  What they fail to disclose to the couple is that when the older spouse passes, the loan becomes due and payable in full.

In one such case, reported in the New York Times, the Robert and Ophelia Bennett secured a reverse mortgage.  The new mortgage, intended to secure this couple’s future, instead helped destroy it.  They paid $20,000 in fees but received only $1,800 in cash.

Mr. Bennett said he did not realize that his new mortgage had taken his name off the title of the home, which the couple had owned together since 1981.

Mrs. Bennett, who was a decade senior to her husband, died shortly after the new mortgage went into effect. The payments immediately stopped and the mortgage became due and payable.

The lender began foreclosure proceedings and scheduled a sale of the property last month.

If HUD had not changed the rules, the suit says, Mr. Bennett would have been allowed to live in the house until his death.

I can’t stress enough how important it is to work with a team you can trust to avoid such tragedies to your family.   If you have ever considered a reverse mortgage or have questions about any real estate topics, please feel free to contact me.

Popularity: 11% [?]

According to the New York Times, “an estimated 38 million Americans provide care to an aging relative.” With numbers like this you would think this would be a frequent topic of conversation within families, but this is rarely the case. Unfortunately, because we tend to avoid the uncomfortable subject of our parents aging, most families are unprepared when mom or dad begins to need help (either physical or financial). But denial can’t stop the inevitable from happening; it only means that you and your siblings will be unprepared when the time does come to care for mom or dad.

What this article in the New York Times stresses is the importance of planning as a family. Parents may think that by keeping their troubles to themselves they’re saving their children stress and heartache, but evidence shows that sons and daughters do end up shouldering part of the burden—financially, physically and emotionally. It stands to reason that if they’re going to share responsibility, these responsible children should have some part in the planning process as well.

The Times article offers some suggestions on how to discuss the issue of aging with your parents and your siblings, and how to prepare for the future together, including how to:

• Open the conversation with your parents and siblings.
• Assess financial conditions and options—including Medicare.
• Learn about care options and their costs.

Don’t wait to have this conversation. As financial gerontologist Rosanne Roge is quoted as saying, “The most important thing is to recognize that it’s likely that elders who live a long time are going to need some help… and you have to pay for it some of the time.” The best time to prepare is now.

Popularity: 5% [?]

One of the things estate planning attorneys have to deal with in their line of work (most often with elderly clients) is the question of whether or not a client is competent to sign their legal documents. Every principal (or person executing the documents) must be competent, and most attorneys—most people—can make this assessment based on observation, experience and instinct during the course of interaction; but every once in a while a situation arises that is not so clear, or a family member will express concern about the principal’s ability to understand and sign legal documents.

How can you tell if a person is competent? In her book Senior Moments author Jacqueline D. Byrd quotes law professor Peter Margulies’ six factors to determine capacity:

1. Ability to articulate reasoning behind a decision
2. Variability of the client’s state of mind
3. Appreciation of the consequences of a decision
4. Irreversibility of a decision
5. Substantive fairness of a transaction
6. Consistency with lifetime commitments

Byrd goes on to say that for the purposes of determining whether or not a person is competent to sign a will or trust, however, the requirements may be slightly different; more focused on whether or not the principal has a clear knowledge of his or her assets, has a full knowledge of the persons to whom the estate is being left, and is able to reasonably formulate and express a plan for the disposition of the estate.

The unfortunate truth about elderly illness is that competency in a person afflicted with the beginnings of Alzheimer’s or Dementia can often change from day to day or even hour to hour. If there will be any question at all about the competency of the principal the safest thing to do is to have mental examination performed by a doctor, and even perhaps include a video will. Of course the very best way to ensure mental competence is to create your estate plan early, before age or dementia becomes a factor.

Popularity: 5% [?]