Thinking of a Reverse Mortgage? There’s Something You Should Know

“Older Homeowners Can Tap Equity in Homes With Reverse Mortgages” (Nov. 10), in explaining the positive aspects of the reverse mortgage plan, overlooked a trap for the unwary that is contained in many but not all reverse mortgage notes and/or trust deeds.

Without exception, reverse mortgages are available only if secured by the borrower’s primary residence. By definition the borrower must occupy the residence in order for it to be his or her primary residence. Typically, the reverse mortgage note and/or trust deed provide that the residence loses its character as a primary residence if the older homeowner moves out without the intent to return.

Some forms of the reverse mortgage provide, again by definition, that a move-out that lasts more than a certain amount of time is prima facia evidence of lack of intent to return, giving the lender the right to call the loan. If the loan is called and the older homeowner cannot pay the balance due with his or her own savings, or in the alternative arrange a refinancing, the lender will foreclose the loan and take the residence.

Being committed or making a voluntary move to a nursing home is one scenario that can put the older homeowner and his or her estate in jeopardy. Although some lenders do not give themselves the right to foreclose in the event of a move to a nursing home, others do.

In my experience as a volunteer attorney at Bet Tzedek Legal Services, a family brought a case to my attention in which the grandmother had taken out a reverse mortgage and then had been moved to a nursing home. Although the family did not think she would be returning and the medical opinion indicated that she probably would not, the grandmother expressed every intent to return. Given these facts, the lender exercised its right to foreclose based on language in the trust deed, which indicated that a stay of more than 12 months in a nursing home was prima facia evidence of intent not to return.

This morning I called the 800 number provided by The Times to inquire about the call provisions of the Fannie Mae Reverse Mortgage referred to by the reporter in his report. I spoke to a supervisor at Fannie Mae Reverse Mortgage division and was told that the terms of the reverse mortgage give the lender the right to call the loan at any time the borrower leaves the residence without the intent to return. I was also told that the reverse mortgage has a special provision for stay in a nursing home for up to 12 months provided the borrower plans to return to occupy the residence: However, the mortgage provides that after 12 months in a nursing home, the loan can be called.

In a situation in which one of the marriage partners has died and the other is moved to a nursing home, the call provisions of the reverse mortgage can be a financial disaster for the older homeowner and/or the estate because, at a time of life that one is reduced to living in a nursing home, one can hardly be expected to have the ability to refinance or otherwise pay off the balance due on the reverse mortgage.

HERBERT I. ROSENKRANTZ

Attorney at Law

Calabasas