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How Does a Reverse Mortgage Affect My Estate Plan?

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Many elderly Florida residents have trouble paying their bills each month. For those residents who own their homes, a so-called “reverse mortgage” may provide the answer to their cash-flow problems. A reverse mortgage–which is known in legal terms as a “home equity conversion mortgage”–is basically a loan the homeowner does not have to pay back right away. Instead, the loan becomes due when there is a qualifying event, such as the borrower dying or moving out of the house.

Reverse mortgages are heavily regulated by the federal government. Typically, the lender is not allowed to go after any of the borrower’s assets–or if the borrower is dead, their estate’s assets–aside from the house itself. Since this puts the lender at risk, federal law directs the Department of Housing and Urban Development (HUD) to insure reverse mortgages that meet certain requirements.

Court Refuses to Stop Foreclosure of Ex-NBA Player’s Home

Recently, a federal appeals court with jurisdiction over Florida addressed one of these requirements. The case, Estate of Jones v. Live Well Financial, Inc., actually involved a reverse mortgage issued in Georgia. But the court’s decision could also impact a number of Florida retirees and estates carrying reverse mortgages.

The facts of the case are simple. Caldwell “Pops” Jones, a retired NBA player, took out a reverse mortgage on his Georgia home in 2014. The loan was insured by HUD. Later that same year, Jones passed away. His widow continued to live in the house.

The company holding the reverse mortgage then initiated a non-judicial foreclosure against Jones’ house. (Non-judicial foreclosures are not permitted in Florida, which requires the lender to file a lawsuit first.) Jones’ estate argued this violated HUD rules, which state the lender cannot foreclose until the death of the “homeowner” or, in this case, the homeowner’s spouse.

But as the federal appeals court explained, this regulation does not actually prevent foreclosure. Rather, the rule limits what types of reverse mortgages HUD may insure. The mortgage itself is a contract between the lender and Jones, which is subject to Georgia state law. So even if HUD illegally insured the reverse mortgage to Jones, that does not affect the lender’s right to seek immediate foreclosure.

Get Advice from a Lee County Estate Planning Lawyer

If you decide to take out a reverse mortgage on your own house, you should speak with a qualified Fort Myers estate planning attorney first. As you can see from the Jones case, a reverse mortgage can have a significant–and immediate–impact on your family’s ability to remain in your home after you die. Even if you expect the house to be sold after your death to pay back the reverse mortgage, this will still affect the inheritance you leave to your heirs. So it is still a good idea to consult with an attorney who can advise you of all the practical consequences for your estate and your family.

Call the Kuhn Law Firm, P.A., at 239-333-4529, to speak with an estate planning lawyer today.

Source:

media.ca11.uscourts.gov/opinions/pub/files/201714677.pdf

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