financialcounselor

Bank Orders Senior Citizen to Pay 72% of Monthly Income toward Back Taxes

In Uncategorized on March 20, 2012 at 12:12 am

HUD guidelines won’t allow her to pay anything less; foreclosure imminent

Today I spoke to Rose, a senior citizen from Pennsylvania who was facing a foreclosure on her home six years after she took out a reverse mortgage.
With a reverse mortgage, a homeowner at least 62 years old borrows against the equity in his or her home, taking the money either in monthly payments or as a lump sum, with no payment on the money borrowed coming due until the he or she leaves the house.
Rose had taken a lump sum when she got the mortgage, and used the bulk of it to pay for home repairs and some medical debts she’d accumulated. So the money she borrowed through the reverse mortgage was spent, and she was living on her social security income of $1,100 per month. She didn’t have a house payment, but she also had never been able to save enough to pay the yearly tax and insurance bills.
Rose had not paid her taxes or her insurance in five years. The bank that services her reverse mortgage paid those bills, and now they wanted their money back from Rose. The money she owed amounted to about $17,000, and they were demanding no less than $800 per month as repayment. With her $1,100 income, she would only be left $300 to live on, which wouldn’t come close to covering her basic needs.
“Rose, is there anybody you know who could live with you and share the bills?” I asked. “You might be able to afford this if there is.”
“I don’t know anybody who needs a place to live,” she said.  “I got this reverse mortgage because I needed money. How can they expect me to pay $800 when I only get $1,100?”
At $800 per month, the debt would be paid back in 21 months, an extremely short period of time to pay back such a large amount.
We called her servicing company and spoke to a representative named Brian. “Why can’t she at least pay this back over a longer time period?” I asked. “Her social security income is only a few hundred dollars more than the payment you’re requiring of her. There’s no way she can afford an $800 payment..”
“It’s not up to us,” said Brian. “The repayment plan is determined by HUD guidelines. If she doesn’t start making those payments, foreclosure will start in three months.”
And that was it. There was no negotiating, no discussion. The Department of Housing and Urban Development had their rules, and those were not flexible.
“I just assumed the money I owed would be added to the loan,” she said. “I was stupid, I didn’t understand how this worked.”
“Rose, I think your best bet at this point is to speak with an attorney to see if bankruptcy might help this situation.”

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  1. This is always what the lender says “It’s HUD that requires it” The lender never takes any responsibility for anything except collecting money from the Elderly. There are most than 50,000 reverse mortgages in default for non payment of taxes and insurance – all those people knew and acknowledged they had to pay property taxes. Without financial advice and a plan – this is the outcome for vulnerable elderly victims of reverse mortgages.

    • Please provide the evidence of the 50,000 reverse mortgages in default for taxes and insuance. Is that information on HUDFHA web site? Where can I go to check it?

  2. I am a loan officer who specializes in reverse mortgages and I understand where you are coming from with this story but you are only looking at one side of it. When Rose went through her manditory reverse mortgage counseling she was advised that she had to keep up on her taxes and insurance. It’s not a question, it’s standard in every counseling session that is required before anyone can get a reverse mortgage. She knew that this was a part of the deal.

    My question is “what would Rose have done if she didn’t take the Reverse Mortgage”? She had some home repairs done, what type of repairs? It is very common that I’ll walk into a home of a senior, especially one living off of $1,100 per month and the roof will be leaking creating mold damage. Plumbing issues are common, some people have no heat, etc. The homes are in a state that is really unsafe for the senior to be living in and at their age they can not do the work on their own. So if this was Rose, what are her options?

    She can continue living in a run down home with no insurance. She is still going to have to pay her taxes, the county will foreclose after 5 years of non-payment just like the reverse mortgage lender will. In this instance she probably should have bankrupted her medical bills or just ignored them. She clearly could not afford them. The sad part about this is that she had no plan going in. Personally I sit down and help each client with their budget plan before the reverse mortgage application is signed. Chances are her loan officer did not do that.

    The thing is that it is not the reverse mortgage that caused these problems for Rose. She would have been foreclosed on anyway for not paying her taxes. If anything, the reverse mortgage hopefully probably helped her get the home fixed up enough so that she could actually sell it.

    Bill Clifford
    Open Mortgage
    http://www.OpenMortgageLA.com
    NMLS 289148

  3. Bill, you pinpointed some big problems. Rose had no long term plan going into the reverse mortgage. And the loan officer and/or counselor likely did not review her future budget as thoroughly as needed. And we don’t know whether Rose considered any different options, or had any different options presented to her.
    From what I see in my job, these are common problems. Rose is hardly the only senior I’ve spoken to who’s lost a home after getting a reverse mortgage. There have been many, and unpaid taxes are not the only reason.
    The point of the anecdote is to warn people about the need to plan long term, that a reverse mortgage is not a cure all, and obviously, that they must keep up with their taxes, which for some reason, a lot of these seniors do not realize.

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