Dear Real Estate Adviser,
We have an FHA-approved reverse mortgage on our house. The company we used paid our taxes without telling us and is now demanding repayment or it’s going to foreclose. The amount is only $4,100 but we don’t have it. There’s still around $60,000 or more in equity left in our home. Can they do this? Is there anything we can do?
— Lilly O.
It’s not clear whether you’ve agreed to set up a reserve/escrow account with your lender to pay those taxes, or if you’re simply behind in paying them and your lender is stepping in to fill the breach.
But whatever’s occurring, I’m reasonably sure you were notified, at least in writing, of how this situation would play out. As you no doubt realize, you’re still responsible for taxes, insurance and maintenance since you continue to own the deed to the house.
Starting in 2014, reverse-mortgage lenders were allowed to offer escrow arrangements similar to conventional mortgages, where you pay them a monthly sum to settle your taxes, insurance and possibly other expenses, so this may be what you’ve agreed to.
Where to start
The first thing you need to do is to ask your lender for a detailed written explanation of what’s going on and why, and what arrangements you can make — ideally using your existing equity — to rectify this. However, under the terms of your reverse mortgage, you may be restricted from drawing on that $60,000 in equity beyond your monthly or lump-sum payments.
If that’s the case, contact a local Department of Housing and Urban Development (HUD)-certified counselor at http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm for advice and possible remedies. You and your spouse might qualify for an inexpensive single-purpose loan through Area Agencies on Aging: call (800) 677-1116 or go online at www.n4a.org. Inquire about “property tax postponement” or “property tax deferral” programs, and whether this works in an escrow arrangement with your lender, if that’s indeed what you have. You can also contact the local county tax assessor and ask about a “circuit breaker” program for seniors, a government-subsidized program providing cash grants or tax credits to folks in need of property tax or insurance payment help.
Why you have to face it now
If you let this go too long, you could lose your home and equity. Fortunately, the FHA now requires lenders to give reverse mortgage holders like you 2 years to get current on past-due payments for property taxes and insurance. And even then, lenders can’t foreclose without approval from the FHA, which will require proof that everything possible was done to prevent it. But please don’t tarry.
By the way, the Consumer Financial Protection Bureau estimates that about 10% of reverse mortgages are in foreclosure risk because of nonpayment of taxes and insurance, adding that the mandatory counseling borrowers must get may not be sufficient to counter the impact of the industry’s aggressive sales tactics, misleading advertising and other questionable business practices. One of the biggest marketing whoppers told is that borrowers will never lose their homes in reverse mortgages.
So remember, don’t let this slide. Act promptly to get clarity from the lender, HUD advice or lending assistance, if needed, from the agencies noted above. It would also be wise to explain what’s going on to a family member who may be more adept at weeding through legalese and who may help you with legal representation if you need it. Good luck.
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