Reverse mortgages were created by Congress in the 1980s to help older homeowners cope with living expenses by drawing income from their home equity. After home values crashed due to the Great Recession, many senior homeowners nationwide, including here in Ohio, faced foreclosure. Although reverse mortgages may be the perfect option for some, consumer advocates warn that this type of loan is a risky choice because it is a complicated product.
A 68-year-old widow in another state explained that she lost her house due to her lack of understanding about the details of a reverse mortgage. When they needed $20,000 for home repairs in 2008, her husband took out a reverse mortgage. Because she was two years away from qualifying for a reverse mortgage at that time, she had her name removed from the title to the property, leaving her 65-year-old husband as the sole owner. According to the woman, the loan servicer assured her on several occasions that she would not lose the house should anything happen to her husband.
The unforeseen happened when her husband suffered a stroke in 2014. He passed away a month later. Within 10 days of his death, she was informed by the reverse mortgage loan provider that the home will go into foreclosure if she could not repay the loan. She was told to vacate the home, and it went to auction within 30 days.
This woman's misfortune is an example of how misinformation -- or the lack of information -- can cause unanticipated hardship and even foreclosure. Homeowners in Ohio who are struggling to maintain the payments on their mortgages, or are considering taking a reverse mortgage, may want to gain comprehensive knowledge about the available options and their respective risks to allow them to make informed decisions. A consultation with an experienced bankruptcy attorney before important decisions are made may help in creating a debt consolidation plan specific to one's individual circumstances.
Source: consumerreports.org, "Reforms Come to Reverse Mortgages", Donna Rosato, April 1, 2016