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WHAT IS A REVERSE MORTGAGE? TOXIC ESTATE ASSET

11
Apr

By Jason Stern

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Beware of over the hill B list actors bearing reverse mortgages. A reverse mortgage sounds good in principle. A trustworthy face from a former television series you may or may not have watched in the 1980’s telling you about how their company has found a way to pay you money to live out your days in your own home. Most of the time they will state their willingness to pay you, a homeowner over 62 years of age, to stay in your home and collect their money to pay your bills. Sounds great. And in2013 more than 60,000 elderly homeowners were issued reverse mortgages on their family’s residence.

What these B list has-beens are not telling the elderly homeowner is that these are actually predatory instruments. They are called reverse mortgages because unlike a conventional mortgage where you make monthly payments to a bank on borrowed money at a fixed percentage, they pay you monthly installments out of the equity from your own home.

If it sounds too good to be true it is. Unfortunately the elderly are prime targets for predatory lending near the end of their lives. Often their judgment is somewhat impaired and they may also be isolated form the outside world. What the reverse mortgage industry does not make public are the terms of their toxic assets.

Reverse mortgages have a 10% foreclosure rate, four times higher than conventional mortgages. Aside from being accompanied by steep hidden fee’s, costs, stringent requirements, their rates are also subject to increases over the terms of your mortgage. Unlike conventional mortgages, reverse mortgages are not fixed as they change with variable interest rates. Interest is thus charged on the outstanding balance and added to the amount owed each month. As such the amount owed compounded with your interest on both equity, costs and fee’s can easily exceed the amount of equity you have in your property.

Furthermore, reverse mortgages have a 400% higher foreclosure rate for a reason. A reverse mortgage can be foreclosed on for one of any number of reasons including but not limited to failing to maintain your property, failing to pay property taxes on time, failing to timely pay home owner’s association fees or even your home insurance policy.

Additionally these reverse mortgage companies hide myriad of hidden costs within their mountains of paperwork. For instance, for each mortgage, the reverse mortgage lenders are entitled to charge a 2.5% “origination fee” also known as points for the amount of equity in the home. This fee could easily exceed $20,000.00 on a $300,000.00 property, and that’s before taking into effect the compounded interest over the course of the loan. Most borrowers do not even know about these fee’s as they are often quietly rolled into the loan amount.

Then the reverse mortgage lenders pile on something called SFSA into your loan. SFSA is a hidden monthly fee charged by the lender based upon your “chance of survival”, longevity. As such, the better your “chances of survival” the higher your monthly SFSA charge.

As a NY estate lawyer practicing in Forest Hills, Queens, we deal with the occasional NY estate asset attached to a reverse mortgage. From my experience as a Queens estate lawyer, I can tell you 9 times out of 9 the asset is deemed worthless. Between the diminishing monthly equity and astronomical interest owed on the self-perpetuating loan amount, families are left with a toxic estate asset rather than a family residence.

Any Queens estate lawyer or experienced NY wills lawyer will tell you there are much better alternatives for getting equity out of your home than a reverse mortgage. However no matter how many NY estate lawyers try to educate their Ny estate clients about the dangers of reverse mortgages the lure persists. There is something enticing about being told you can live out the remaining years of your life in the comfort of your own home receiving monthly checks. However as a NY estate lawyer I can tell you it is probably cheaper to stay at a 5 star hotel for the rest of your life than to take out a reverse mortgage on your home.

If you or a loved one are thinking about planning their estate and would like a free consultation with a NY estate lawyer feel free to call The Law Offices of Jason W. Stern & Associates at (718) 261-2444. Our Queens estate lawyers have nearly 45 years of combined NY estate law experience drafting and probating the wills for families like yours in the counties of Queens, New York, Kings, Bronx, Westchester, Rockland, Nassau, Orange, Dutchess as well as in the State of New Jersey.