If you pay, you stay; if you don’t, you won’t

Laurie MacNaughton © 2023

Recently I heard a heartbreaking story from a friend: a couple years back her 55-year-old cousin lost his job, and shortly thereafter had a stroke. He spent well over a year in a rehab facility, and during his recovery he fell behind on bills, including his property taxes. By the time I was hearing this story, the county had foreclosed on his home due to tax delinquencies.

Why did he lose his home? Because he lost his job and then had a stroke.

This morning I spoke with an attorney whose advanced-elderly client is losing her home to a tax foreclosure after not paying her property taxes for the past two years. Turns out, the homeowner has a reverse mortgage.

Why is her home in foreclosure? In many people’s eyes it’s because she has a reverse mortgage.

If someone loses his job and then loses his home, we blame the circumstances. If someone has a reverse mortgage and loses his home, we blame the mortgage.

Wait, what? How did we get here?

The entire story of how we got here is quite interesting, but it’s also too long to cover in its entirety in one column. The overview is this: in their earliest form, reverse mortgages had little federal oversight and few regulations, and by all accounts there was some pretty crazy stuff going on. Even with the modern reverse mortgage, until 2014 the qualifications were simply age and equity: if a homeowner was 62 and had enough equity, he or she could qualify. There was no financial assessment to verify the homeowner could pay property taxes and homeowner’s insurance on an ongoing basis.

This simple addition to the qualification process has gone a long way toward preventing problems.

So how is it that in 2023 an elderly woman with a reverse mortgage, living in Arlington, Virginia may lose her home?

She’s losing her home for this reason: she didn’t pay her property taxes. Just because she can afford to pay them it doesn’t mean she can remember to pay them. Even if she had no mortgage whatsoever, if she didn’t pay her taxes she would still be in foreclosure.

A couple points here. First, most Virginia tax jurisdictions offer property tax relief programs for older homeowners. Many homeowners are unaware of this, and it’s a shame – because tax relief can be a huge financial boost. Second, most tax jurisdictions allow taxes to be set up as an automatic, recurring payment. For some of our oldest homeowners interested in this option, this may mean they need a helping hand setting up recurring payments. My own father, a truly brilliant aerospace engineer, never did master the personal computer. My mother was quite good on the computer, but she wasn’t in charge of finances.

The third thing I want to point out is this: when homeowners with so-called “forward” mortgages lose their homes, the losses are spread over all age groups and the causes vary. When homeowners with reverse mortgages lose their homes, all the homeowners are nearing retirement or have already retired. When there is one demographic represented, it can be easy to blame the type of mortgage, even when the cause overwhelmingly is a failure to pay property taxes. Taxes are taxes, and they must be paid – unless homeowners are property tax exempt. It’s the classic “if you pay you stay; if you don’t, you won’t.”

One last thing of note is that it is now possible with a reverse mortgage to do something called a “Life Expectancy Set-Aside,” or LESA, whereby property taxes and/or homeowner’s insurance are withheld, and then paid by the loan servicer when due. A LESA may be required in cases where there is a spotty tax or homeowner’s insurance payment history. But some homeowners opt for a LESA simply out of convenience.

If you have aging loved ones in your life, please ask them if they would appreciate help setting up recurring property tax payments. Be mindful that the ability to keep track of dates, deadlines, and requirements may diminish as we age, and that the “money talk” may be one you need to have with loved ones on an annual basis. And check to see if they qualify for tax relief.

If you’re an aging homeowner and would like to know more about property tax relief programs, call your county’s Commissioner of the Revenue. Bank branch personnel and local librarians can also look up your county’s property tax exemption guidelines, and many will print the application forms.

Long gone are the days most of us are looking at funding retirement. Discussions now must be about how we’ll fund longevity – an altogether different proposition. If you’re having money issues, it’s better by far to ask for help earlier than later.

If you would like more information about the role a reverse mortgage can play in your long-range financial planning, or in the life of one you love, give me a call. I always love hearing from you.

You know… 2022

Laurie MacNaughton © 2023

After a prolonged battle with cancer, in early 2021 her husband died. Now she needs to get out of her too-large home. Using a combination of proceeds from the sale of her current home and funds from investments, she was planning an all-cash purchase.

But then, you know, 2022.

And now that once-plump portfolio is looking very thin indeed, and she’s come to the following realization: an all-cash purchase, while technically possible, is going to leave her house-rich but cash-poor.

Enter Reverse for Purchase.

She’s buying the same house she had her eye on – only instead of paying all cash, or taking on a newly-minted mortgage payment, she’s putting 50% down… and she’s done.

She’s made the only mortgage payment she’ll ever make, as long as she lives in the home. When the home is sold, the loan will be repaid, in reverse. The rest of the equity will go to her or to her heirs.

And best of all? She can leave her investments untapped, giving them time to recover.

If your 55+ client, your parent, your friend, finds themselves unable to move forward with a purchase in a tough market, give me a call. I always love hearing from you.

Reverse mortgage: an additional solution for resolving equitable distribution in Silver Divorce

Laurie MacNaughton © 2022

Equitable distribution can be among the most complex issues in any divorce. When the divorcing parties are aging adults, an additional layer of complexity may be involved.

Historically, there have been two solutions to equitable distribution: sell the marital home, or refinance the existing mortgage to clear the departing spouse from the note.

However, either solution may be suboptimal. If one party has impaired health, moving can be severely stressful. Additionally, homes currently for sale may be unsuitable if the individual parties are hoping to purchase. It also bears mentioning that because one party—or both parties —may experience a reduction in income following the divorce, obtaining a new purchase-money mortgage may not be within reach.

Similarly, refinancing a home can be difficult, or simply impossible, on one income.

Reverse mortgage overview

A reverse mortgage is a home equity loan. It differs from other home equity loans in that a reverse mortgage loan is not repaid until the last person on title permanently leaves the home. In other words, the homeowner can borrow some of their home’s equity without picking up a monthly mortgage payment.

Because this is a mortgage, it will eventually be repaid—but it is repaid on the back end, in reverse. Only the loan amount is repaid; all remaining equity goes to the heirs or estate.

Applicability to Silver Divorce scenarios

Spouse remaining in the marital home:

In cases where couples have been married many years, there may be equity enough in the home for proceeds from the reverse mortgage to pay the departing spouse’s portion of the marital share. At very least, reverse mortgage proceeds plus an additional cash payment to the departing spouse may make it possible for one partner to retain the property. This would be a Reverse Refinance scenario.

Relocating spouse:

The spouse relocating after divorce may face unanticipated challenges when looking to purchase. Common challenges include newly-reduced household income; unfavorable debt-to-income ratios; excessive credit utilization; and negative mortgage-payment history incurred during the marriage.

A strong option may be Reverse for Purchase. This purchase loan works in the following manner: the homebuyer provides a down payment, the size of which is determined by the homebuyer’s age. The loan provides the rest of the purchase price.

The general formula should sound familiar:

down payment + plus loan amount = purchase price of the home

However, unlike a “forward” mortgage, with Reverse for Purchase, there is never a required monthly mortgage payment—though the homeowner may make a payment at any time if s/he so wishes.

Not making payments is very different from saying the loan is never repaid. The loan is always repaid—it’s just not repaid on a monthly basis. Rather, the loan is repaid when the last person on title moves, sells, or dies. In other words, the loan – interest and principal—is repaid once the homeowner no longer needs the home.

Of course, a reverse mortgage will not work in every divorce situation. But in many divorces in which the divorcing parties are 62 or older, reverse mortgage may serve as an option for meeting the financial mandates of the Property Settlement Agreement and for meeting the housing needs of the relocating spouse.

Divorce is no one’s “Plan A.” But as the classic line goes, life is what happens while you’re making other plans.

If you have questions about how a reverse mortgage might help your client, give me a call. I always love hearing from you.

Advanced planning – more important than you might EVER imagine

Laurie MacNaughton © 2022

Most everyone agrees the best time to plan is before a crisis occurs. It’s not that mid-crisis planning is impossible – but it’s often true that the more urgent the problem, the pricier and more complex the fix.

Following are important steps to take before a crisis arises.

The first is to record all administrative information on one master list. Then, make sure your family knows where to find this list. If they don’t know where to find it, the list is worthless.

Include on this list:

  • The name of all banking, or other financial institution, relationships;
  • Mortgage and line-of-credit information;
  • The name of any pension plan, life insurance plan, investment account, and health savings account, along with account numbers;
  • All income sources, including Social Security, annuities, pensions, veteran’s benefits, and the like;
  • All financial obligations, including credit cards, car payments, and utilities, along with the names of the utility providers;
  • Usernames and passwords for all online accounts;
  • Copies of driver’s licenses, social security cards, healthcare cards, birth certificates, divorce decrees, or death certificates, as applicable;
  • The names of primary care physicians over the past 10 years. The current physician may well be different than the one used a decade ago. (I will say more about this, below.)

The second step is to meet with an attorney regarding the following documents:

  •  Power of Attorney (More about this, below)
  •  Will
  •  Advance medical directive
  • HIPAA release

If these documents already exist, review them and have an attorney make necessary updates.

Note: Not all attorneys routinely deal with advanced planning. Specialists in this field typically fall under the category of elder law. A full list of Virginia elder law attorneys can be found here: https://reverselady.com/https-middleburgreverselady-wordpress-com-resources-for-homeowners-and-their-adult-children-2/

There’s something important to know about a Power of Attorney: for many applications, in order to use a Power of Attorney, a physician’s letter is required stating the Principal has become incapacitated. This letter serves as a safeguard against a bad actor who might try to exercise a Power of Attorney behind your back. In the letter the doctor must state that, at the time you signed the Power of Attorney, you were mentally competent to do so. This seems insulting to the attorney who drew up the Power of Attorney, but there is no fighting this requirement. It also means your doctor must have access to medical records going back to the time you signed the Power of Attorney.

If no one knows who your physician was at the time your Power of Attorney was signed, an adult child – or other responsible party – may well need to become your guardian, conservator, or both. Over the years I have had dozens of adult children have go this route, and it can be a pain in the neck. Going to court is typically slower, and is certainly more expensive, than getting a “Letter of Capacity” from your doctor.

Another item of note is the following: in order to use a Power of Attorney when applying for a mortgage, the original Power of Attorney document must be available. A copy is not acceptable, regardless of state law. If the original document truly is not to be found, there are remedies; however, the fix requires the services of an attorney and will carry a price tag.

As I’ve said, many issues can be fixed. But if you’re sick or incapacitated and someone must run interference on your behalf, both time and money are likely to be at a premium.

In a utopian world there would be no aging, sickness, financial hardship, or death. But in this world we inhabit, a little planning and forethought can avert a lot of pain, a lot of hassle, and a lot of unnecessary expense.

If you would like more information on this topic, or if you would like to look into how an FHA-insured reverse mortgage might help with financial needs in retirement, give me a call. I always love hearing from you.


You’re not as pretty as you used to be

Laurie MacNaughton ©2022

My client sat down, looked at my business card, looked at me and said, “You’re not as pretty as you used to be.”

Yup. That happened.

I laughed and said, “You’re right – that’s an older picture. I need to get new cards.”

After his comment, for the millionth time I had to reflect on the weirdness of aging.

Because aging is weird. Aging is confusing. And, frankly, aging can be kind of scary. Add money concerns to the mix and aging can be…really scary.

Many clients tell me they’re concerned – or even outright scared – about money. This concern, of course, is why they’re exploring a reverse mortgage in the first place.

This said, it would be a misconception to paint all my clients with one broad brush. Truth is there are many reasons homeowners look into a reverse mortgage – but there are roughly three categories of enquirers.

The first is a group I call the “pre-need planners.” People realize their income, savings, and investments are likely not to be sufficient as they age, and they’re looking for a tax-free source of liquidity for future use.

The second reason is debt. Often this debt was driven by a health emergency, and uncovered expenses were paid with credit cards. Now the crisis is past, and they’re left struggling with high-interest payments.

The third reason is in-home healthcare. These costs can be breathtakingly high, and it’s not unusual to see couples paying $22,000 per month for care. $22,000. Per month. Many of these clients went into retirement with hundreds of thousands in savings, but have simply outlived their money.

Many past clients have called to say their reverse mortgage has been a “miracle.” As blessed as I am to hear this, a reverse mortgage is not a miracle. A reverse mortgage is… well… a mortgage. As such, it will be repaid.

But rather than being repaid on a monthly basis, the loan is repaid on the back end, in reverse. This means homeowners can use their equity without picking up a monthly mortgage payment. The impact of having a tax-free “bucket” to draw on can be truly profound.

If your client, friend, or loved one would like to explore how a reverse mortgage may contribute to their financial wellbeing in retirement, give me a call. I always love hearing from you.

Oh, and that old business card? There’s a new one in the works.

I know a lady

Laurie MacNaughton © 2022

There it was again today.

You do reverse mortgages? I know a lady who had a reverse mortgage and lost her home.”

“I know a lady….” If I have heard this once, I have heard it a hundred times.

And you know what? Never do I ever doubt these stories. Never.

But you know what else? Two things can be true at the same time. The lady had a reverse mortgage? The lady lost her home? Both things may very well have been true. However, that does not mean the one caused the other.

Odds are high–in fact very high–that the lady in question forgot to pay her property taxes. But no one is going to ask that, right? It’s rude.

But you know who does ask? The FHA. In fact, the FHA keeps minute tabs on reverse mortgages, including data on the small number of homeowners who have lost a home. Top of the list? Homeowners who default on their property taxes.

Property taxes are not a function of a reverse mortgage. Nor are they a function of a traditional mortgage. Rather, property taxes are simply a responsibility of homeownership. Punto.

But that’s not an interesting story. “Elderly homeowner forgot to pay property taxes and lost her home.” No clickbait there.

“Elderly homeowner with reverse mortgage loses her home,” on the other hand, stirs righteous anger in our hearts. It smells of elder financial abuse, shysterism, and shameless exploitation.

But here’s where the true shame lies: most tax jurisdictions offer tax reductions–or even full tax waivers–for the elderly. Why is this information not made more widely available to our aging?

For those still paying taxes, most jurisdictions allow taxes to be set up as automatic, recurring payments. For some of our oldest homeowners, this may mean they need a helping hand setting up recurring payments. My own father, a truly brilliant aerospace engineer, never did master the personal computer. My mother was quite good on the computer, but she wasn’t in charge of finances.

If you have aging loved ones in your life, ask them if they would appreciate help setting up recurring property tax payments. Be mindful that the ability to keep track of dates, deadlines, and requirements may diminish as loved ones age, and that the “money talk” may be one you need to have on a regular basis.

If you would like more information on the role a reverse mortgage can play in your long-range financial planning, or in the life of one you love, give me a call. I always love hearing from you.

Funding the space between end of health and end of life

Laurie MacNaughton © 2022

It’s called health span – and though I only recently became aware of the term, turns out…not a new idea.

This odd-sounding term refers to how long one’s impairment-free health lasts. Some experts refer to this as “healthy life years,” and it is a concept separate from lifespan. What makes this topic significant is that for many older adults there is a years’-long gap between the end of health and the end of life.

Though there isn’t (yet?) a succinct term for it, for many there is another gap – a “finance gap.” It can be summed up simply as the years of life left once the money has run out – and often this chapter of life is accompanied by ever-increasing care costs.

So how do you fund that gap, the gap between the end of health and the end of life? Where does one turn for money once health is declining and finances are depleted?

If you’re very lucky, your adult kids can help. However, rarely is this the best option as that means the kids are using dollars they should be saving for their own retirement. Also, monies gifted to parents typically are not tax deductible by the gifter, and in some circumstances gift money may imperil a parent’s benefits.  

Though it’s an easy default position to judge those whose finances have grown thin, it’s not fair: when today’s retirees started working, lifespans were notably shorter. While it’s entirely possible to work 40 years and save enough for 5 years of retirement, it’s a whole other proposition to save enough for 25 or 30 years of retirement. And, people now routinely live for years with complex medical conditions that once were quickly fatal.

Standard recommendations to improve finances include sticking to a budget, taking a part-time job, and by becoming a “life-long saver,” meaning putting a small amount by each month. But these measures often are impossible once a serious health condition arises.

This is where a reverse mortgage can be a true lifesaver. A reverse mortgage is a seniors’-only home equity line of credit that is repaid when the last titleholder permanently leaves the home; all remaining equity goes to the homeowner, the heirs, or the estate.

Rarely will a reverse mortgage be the whole solution. However, a reverse mortgage can be a significant part of the solution.

This much is certain: none of us is likely to get by on just our Social Security. Few will survive on just an IRA, a 401(k), a pension, or savings – or a reverse mortgage. But when added together, all these can contribute to financial longevity.

If you would like to discuss your financial needs, or those of a loved one, give me a call. I always love hearing from you.

Rarely is a problem too large

Laurie MacNaughton © 2021

It looked like it was heading for a bad outcome: Robert sold his mother’s home and placed her in a care facility.

The problem? Mom was on Medicaid, and her formerly exempt asset was now quite a large countable asset, which spelled big trouble for her care options.

Fortunately, Robert picked up the phone and called an elder law attorney, who listed buying another home among potential cures.

Because Reverse for Purchase has notably easier qualification guidelines, Robert’s mother qualified even on her limited income. And…yesterday she closed on a lovely new home. She is scheduled to move in shortly before Christmas.

Rarely in life is a problem too large. More often, solution sets are too small. In this case, Reverse for Purchase was the perfect fit for a problem that had few other solutions.

If someone you know is in need of options, give me a call. I always love hearing from you!

I feel I’ve lived a miracle

Laurie MacNaughton © 2021

Margaret was 75 when she inherited her mother’s ranch-style home. Because the home had a perfect aging-in-place layout, Margaret and her husband decided to sell their current home and move into the smaller, single-level property. Their current home sold quickly, and they began packing for the move.

But then one tragedy after another struck: Margaret’s husband died suddenly. Margaret lost her job when her employer closed his doors. And then, just days later, the inherited home burned to the ground. And, as fate would have it, the home was uninsured at the time.

Margaret moved in with family while she had the home rebuilt, and funded the construction with proceeds from the home she and her late husband had sold. However, the funds didn’t cover the full cost, so she tried to get a loan to cover the remainder. In the meantime, the contractor finished the work and placed a mechanic’s lien against the property.

She tried lender after lender – but the loan amounts fell far short of what she needed. After all, she was living on just Social Security and a state pension. Though her income was by no means meager, she could not qualify for a loan large enough to pay the contractor.

Months went by, and finally Margaret consulted an attorney regarding her options.

His recommendation? Look into a reverse mortgage.

With a reverse mortgage there is no requirement to prove the homeowner can make a monthly mortgage payment, and consequently Margaret qualified for a far larger amount than she had with a “forward” mortgage. The reason? A reverse mortgage has no required monthly mortgage payment.

The lender must verify the homeowner can cover property charges, including property taxes, homeowner’s insurance, routine upkeep, and condo or homeowner’s association dues, if applicable.

Today Margaret is living in her lovely new home. She has paid all her debts and has no required monthly mortgage payment. When I spoke with her recently she said, “I feel like I have lived a miracle.”

A reverse mortgage is not a miracle – it’s a mortgage. It’s a mortgage that’s repaid on the back-end, in reverse. However, it’s a mortgage that can accomplish results other mortgages often simply cannot.

If you are – or someone you know is – in need of options, give me a call. I always love hearing from you!

Forbearance-to-Foreclosure Pipeline

Laurie MacNaughton © 2021

She’s 78 years old.

She’s 78 years old and heading into foreclosure.

How did she get here? How the HELL did she get here?

A year ago, as allowed for under the CARES Act, she put her home into forbearance. Now one year on she’s newly widowed, meaning she’s got half the income and all the debt, and her home is coming out of forbearance in just a few weeks.

According to correspondence from her mortgage company, she also has a $69,000 lump sum due on her existing mortgage come September 1. If she cannot come up with that amount, per her mortgage company, her home is headed toward foreclosure. She has tried to refinance both with her current lender and with several other lenders.

But here’s the thing: it can be very difficult to refinance if you are not currently making payments. This means many thousands of our seniors may soon be in dire distress.

So back to our 78-year-old.

This past week her banker mentioned the possibility of refinancing using a reverse mortgage.

To answer your question: yes.

Yes I can qualify her.

Here’s why: with a reverse mortgage she does not have to have income enough to make monthly mortgage payments…because with a reverse mortgage there is never a monthly mortgage payment required. Rather, the mortgage will be repaid on the back end – in reverse – when the home is sold. All remaining equity belongs to the homeowner, the heirs, or the estate.

Because homeowners still own their home, they continue to pay homeowner’s insurance, property taxes (unless tax-exempt), and HOA or condo dues, if applicable.

We may well be in the calm before the storm. But our older homeowners currently in forbearance do not have to lose their homes if they can refinance using a reverse mortgage.

Please, please be proactive in asking the hard questions of your loved ones currently in forbearance. You know, as do I, that many older homeowners are not comfortable asking for help – until they’re out of all options they know to pursue.

Do please pass this message on to lenders, bankers, planners, attorneys – anyone in your life who deals with older homeowners.

And do call at any time if you have a client, friend, or family member aged 62 or older who wants to talk. I’m always available.