Reverse Mortgages/Elderly mother, reverse mortgage
QUESTION: My mother is now 90 yrs. old and took out a reverse mortgage on her modest home in California about 11 yrs. ago. I don't know who the lender is or exactly what the terms were, but I do know it was for a $300K line of credit, of which I estimate she's withdrawn over $100K so far to pay off bills, get house repairs and such, and she also gets an ongoing small monthly stipend as well (something like $500/mo.) since the onset of the loan. I don't know what the balance of the line of credit is at this point, and there may also be a lien on the property from the State of California looking to collect on medical bills resulting from my father's hospitalization before he passed away 4 years ago.
Another issue is that since acquiring this reverse mortgage, the real estate market in the area decreased considerably, and the house value is now below what it was at the time of the mortgage, and if sold now, probably would not bring a price that would cover the amount of the loan, if in fact, the full line of credit has been used.
So several questions have come up: Can the owner of a home with a reverse mortgage sell the home anytime they wish, or must it remain in their name and/or possession until death? If my mom wants to sell the house now at it's current (reduced) value, does she owe only that part of the line of credit that she has used (plus interest), or how does the payoff work in circumstances such as this? And what would happen to any liens should there not be enough proceeds from a sale to payoff the lender and the lien holder? I presume the lender's debt would take precedence, but if the state is the lien holder, perhaps they have first dibs? How does that work?
Also, to complicate things even more, my mentally ill sister moved into the home a couple of years ago, and is basically mooching off our mother, not paying any rent, etc., and is running the property down with all her animals and hoarding issues, so I know the value is also being greatly affected beyond just the market drop. She also apparently believes she'll still be able to live there after mom passes away, even though she has no capacity to buy the house.
So my questions are: What happens to family members who live in the home, and can't afford to buy it should the owner of the reverse mortgage pass away? Does the bank evict anyone living there and then sell the house? How would the bank even know that the owner passed away if we have no way of knowing who the lender is to be able to notify them? Is there a way to find out who holds this reverse mortgage before we're faced with this issue? Mom won't answer any direct questions about the mortgage or who the lender is when we ask, so everyone has been left in the dark.
Also, can we (the family members not living there), sell the house on our own after mom passes away? And would we have to be in direct contact with the lender prior to listing the house, etc.? Since I don't know who the lender is, and don't know if mom even has any of the paperwork for the reverse mortgage anymore, it's concerning that our hands may be tied as far as selling the house after she's gone if we have no info on the lender.
I hope you can shed some light on this frustrating situation.
You have described an unusually complex situation. So let me start with a few perspectives before addressing the issues.
1. The advice I can give on this web site is limited, and not a legal opinion.
2. You will, no doubt find people who will want to "help" you by selling you services, or ways to pay off the reverse mortgage by refinancing -- usually at a high cost.
3. You will need to assess the prospect of cooperation among the family members, especially since you've described a situation where some are living in the home and others not, but potentially with an interest in the outcome.
That said, here are some of the issues, and suggestions on how to deal with them.
Normally, the issuance of a reverse mortgage is recorded in the records of the County Recorder of the jurisdiction where the home is located. Have you requested a title search on the property to find out the name and contact information of the lender? That would be a good place to start. Then you would be able to determine the extent of the debt and the terms of the reverse mortgage. That leads to the next issue: whether you are authorized to receive this information.
Is your mother, the homeowner on the title, capable of administering her own affairs? Does anyone have a power of attorney? Does she have a will? (if not, the real estate will pass under the State laws of intestacy, usually to the next of kin, proportionally.) If there is a will, who is the Executor or Personal Representative and how does the will treat the home? Is your mother capable of living in the home for the foreseeable future?
There is no single set of terms for reverse mortgages, especially those written 11 years ago. You mention an initial draw of 100K, and $500/month draws (plus accrued interest) since the original loan. Typically (but NOT always), a monthly draw setup continues for the life of the homeowner/borrower -- as long as the homeowner/borrower is living in the home. If the homeowner/borrower moves from the home, or dies, there is usually a 12-month period (actually a 6-month period, plus a 6-month extension) for the loan (including all interest) to be paid off, the home sold, or otherwise transferred subject to the terms of the reverse mortgage.
In this case, if your mother dies or moves to another principal residence, she (or her power of attorney) would have to decide how to meet this obligation.
One complicating factor is the lien you mentioned. Again, without giving you any opinion on the applicable law, the typical situation would be that the tax lien would be senior to the reverse mortgage. However, the terms of the specific reverse mortgage may well include an undertaking by the homeowner/borrower to keep the property unencumbered and maintain the overall condition of the property. BUT this is a typical provision, not necessarily the case here.
At best, within 12 months of the precipitating event (your mother's death or move from the home), the home could be sold and the taxes and mortgage debt be paid off with something left to pass under the will.
At worst, there would be no equity, and the value of the home would be consumed by the medical claim lien and the reverse mortgage debt.
In either case, the facts indicate your sister would have to move out within 12 months of your mother dying or moving out.
You also raised an interesting question about notifying the lender at the time your mother moves out or dies. I cannot speak to the specific obligations of the Executor or Personal Representative under the terms of a will, but generally the practice is to require notification to all parties such as Social Security, other sources of income (including reverse mortgage monthly payments), and the like. The contractual terms of the reverse mortgage are likely to address this notification obligation.
The situation with your sister who lives in the home with your mother could give rise to a dispute among the heirs. It seems likely that her cooperation would be best for everyone, for this reason: if there is no agreement to sell the home and settle up, there would be a foreclosure, and she would be forced to quit the premises. If she does agree to cooperate in finding a buyer, there would be some basis for a good-will cooperative effort to meet everyone's needs. The mental illness issue does, of course, complicate the process of finding a mutually satisfactory resolution.
I'm inclined to ask you to consider where your mother stands in all this. From your description, she is not objecting (openly) to your sister's "mooching" and failure to clean up after her pets. Is there perhaps some issue of elder abuse in the home? Is it possible that both your mother and your sister need assistance?
That's as far as I can reasonably go at this point, but you may wish to follow up after you've read my response.
I hope that helps.
---------- FOLLOW-UP ----------
QUESTION: Thank you so much for your very detailed reply. The information has been most helpful.
To clarify some of your questions: My mother is able to take care of her own affairs at this point. She has not assigned anyone as POA that I know of, and there is no will that I'm aware of. It's likely she is going to remain in the home until her death. The unfortunate situation with my sister is not going to change in the foreseeable future. It's a very complex and dysfunctional dynamic between mother-daughter, encompassing the bulk of my sister's 52 years of life. My mother believes that my sister only has honorable intentions in everything she does, and while my sister's actions speak loudly otherwise, no one can convince my mother any differently, and there's nothing anyone can say/do to change this. I have no doubt my sister is going to be as uncooperative as possible after mom is gone as she has always felt entitled to everything my parents had.
So, thinking ahead a bit, (if you know) would I need my sister's permission to sell the house after mom passes, being that her estate will go to both of us intestate as her next of kin? I don't expect there will be much if any proceeds to disperse after the reverse mortgage and any lien(s) are satisfied, but my main concern will be getting the house sold before it's foreclosed by the bank and ruined any further by my irresponsible sister.
Also, can you tell me what type of authorization I would need to do a title search on the property to get the lenders information? Would any of this be a matter of public record also? I don't expect my mother is going to cooperate with anyone regarding a POA, or providing any information about the lender and such.
Thanks again for your time and assistance with this difficult situation.
I don't think you need permission to access public records on liens or mortgages recorded on a particular property. You can either go to the County Recorder's office (where the clerk may help you), or ask a title company to search. The title company may charge for the service, or perhaps you have a friend who's a licensed real estate agent who might help get it done as a courtesy.
Assuming it's just you and your sister as heirs, given the situation you've described, I would not hold out a lot of hope about forcing a sale or her removal. It sounds to me like an opportunity to pay substantial legal fees and get little satisfaction.
Here's the most important point -- based on the facts you've presented -- at least at this stage as it occurs to me: whether there would be much equity left in the house some time down the road after your mother passes on. Now, consider what half of that equity would be. Then ask whether your share would warrant a legal battle.
However, there is some better perspective, I think. First, this is not imminent. If you are sure there is no prospect for your mother to take any action, let the matter rest. If you are able to enjoy time with your mother, take that as a positive opportunity, and do so. If not, then concentrate on other things in your life that are satisfying.
There's likely going to be a 12-month period to settle the matter after your mother passes on, during which you can take whatever remedial actions you decide on. If there is no will, then you can probably apply to be appointed executor of the estate, and given your sister's mental illness, that would give you some ability to take appropriate actions -- though it must be said that you would also be taking on fiduciary responsibilities toward your sister in her claims on the estate.
As for any advantage or threat regarding foreclosure (as opposed to some way of salvaging whatever equity may be left after the lien and reverse mortgage), it seems to me to be premature to be wrestling with this issue -- especially with so many variables in play.
I hope that helps.