THERE IS A "CATCH" IN REVERSE MORTGAGES

Several years back, my debilitated mother had nearly run out of her savings.  Dad had died long ago.  At that time, she was taking some very expensive drugs.  She was 86 years old and had spent most of her savings.  She absolutely did not want to sell her house and move in with me, so she agreed to make a "reverse mortgage."

A lady from Wells Fargo came to the house and explained what it involved in taking out a reverse mortgage on my mom's house.  A reverse mortgage is just like a regular mortgage in that you have to listen and evaluate the details very carefully to see if it is right for you.

The amount of money a person receives depends on how much equity is in a house.  If there is a mortgage, it can work, but it makes it a little more complicated to work out the deal.

My mother's house was paid for, mortgage free, so it eliminated some of the aforementioned complications.  I sat with my mother as she was explained about how a reverse mortgage works, and I remember that everything seemed okay up until it came to how the money would be disbursed.  With only superfical thought, I can imagine many people making the wrong decision.  This decision should be made according to a person's personal circumstances.

The money can be disbursed as follows:
1)  Placed in a line of credit with the money w/d at a person's discretion
2)  A set monthly income
3)  All at one time, in a lump sum,  to be deposited in a personal checking account

Using the choices set forth in 1 & 2, the money STOPS being disbursed the minute the owners of the house vacates the house for an extended period of time, such as permanently entering a nursing home, or if they should die.  THE MONEY STILL LEFT IN THE ACCOUNT WILL NO LONGER BE DISBURSED, and at that point, the mortgage holder will give approximately one year for an administrator of the estate to sell the house.  If the administrator wants to pay/buy the mortgage (the amount already withdrawn), this will be acceptable, but if not and the house does not sell within the year allowed, THE MORTGAGE HOLDER FORECLOSES ON THE HOUSE.

I told my mother to take he full amount from the beginning.  This worked fine, as I will explain further down this article.

Example:  Say the house has $300,000 worth of equity, and the owner decides on either 1 or 2 options.  For whatever reason, he/she/they has to move out within a year and has only drawn out $15,000 dollars.  If the beneficiary of the estate does not want to buy it, it will be put up for sale.  If no one buys it within a year, the mortgage holder will foreclose on it, sell it for much more than what is owed on it, and make a ton of money on the deal.  THAT IS THE CATCH!

I lucked out!  My mother's reverse mortgage was processed before this latest housing crash occured, so she got a "good appraisal" which determined the amount of equity she had in the house.  But by the time she died, the appraisal had dropped over $20,000.  I didn't want her house since I already had a house and could not afford to own two houses.  I tried to sell it for the amount that was owed on it without success.  Due to it being upside down, unless I put money with it so the buyer could get a clear title, I let Wells Fargo foreclose on it.  Since she had taken the full amount from the beginning, my mother already had the full amount of equity sitting in her checking account.  The foreclosure did not affect me in any way.  

Bad deal:  With the appraisals being so low now, the equity in anyone's house will not be as good as it might have been a few years ago, so this should be given a lot of thought.  Questions to consider:  What might happen in the future to the owners of the house...if they will be able to stay in the house for a long time...and what will happen to the house when the mortgage company takes it over.

Good deal:  If a person gets a good appraisal, with a generous amount of equity available, and ALL the equity money is selected from the beginning and placed into a personal checking or savings account, then it won't matter as much what happens in the future.  The mortgage holders do not come back on the beneficiary of the house to request a refund.

As in all dealings:  Listen to the person offering the reverse mortgage, carefully analyze the facts, and do not let emotions get in the way.  Ask..."What if so and so happens in the future!"  Consider every possible scenario that might be involved in the deal.

This is a very brief overview of what can happen when a person makes a reverse mortgage.