Estate planning attorneys typically find out that their clients have entered into a reverse mortgage twenty seconds after the indebted client or clients have died. The typical situation involves a telephone call to ask the lawyer why Dad’s home is going into foreclosure “so soon after he died.”
The conversation typically then continues: “I don’t think Dad knew that the bank would go into this attack mode so soon after his passing. It hasn’t given us time to react.” Or, another common response: “ Things didn’t happen this quickly when my husband’s parents passed.”
There is a different reason for each of these reactions. First, Dad had to have known about the immediate need to react when he died with a reverse mortgage. According to Howard Platte, the Branch Manager of the North Orange County Gem Mortgage office, “The process of obtaining a reverse mortgage involves a counseling session that explains, in great detail, the requirements following the death of the borrower. Basically, every borrower is told in intentional detail that a house which is collateralized with a reverse mortgage, no matter who the lender is, has a basic requirement at death: either the loan is paid off, or the house must be sold to pay off the debt.”
Platte believes that the second reaction to a foreclosure on a Reverse Mortgage – that the fast foreclosure didn’t happen when another person died– is probably accurate. He explains “Most likely the other family member who had an easier time at death owned the home in trust. When that occurs, the lender is more likely to be able to talk to the heirs of the deceased home owner. That trust can make all the difference, because if the lender is not able to talk to anyone, the foreclosure will follow.”
One of the principal problems with slowing down the process of foreclosure at the death of an owner of a home outside of a trust with a reverse mortgage stems from the fact that too many lenders are unwilling to deal with the heirs of the deceased home owners unless the heirs of the deceased owner have been issued paperwork from the probate court to indicate that they are authorized to talk for the deceased family member’s estate.
“Since lots of family members wait a few weeks to contact the mortgage company, and because it then takes some more time to get the letters from the Court,” explains Platte, “the lenders will often start the foreclosure before the probate has given the authority to the family members to talk to the mortgage company.”
The frustrated heirs are frequently left in the lurch once the foreclosure process on the homes outside of the trust begins.
“We have seen the advantage of trusts owning homes first hand,” Platte continues, “and it just doesn’t make sense to add problems to the ability of family members to administer their parents’ estates. A trust owning a home that has a reverse mortgage will normally allow the family to save time and money on the passing of the title to the next generation, and in some cases it simply saves the house from foreclosure.”
When a family considers the ability to avoid the foreclosure which may follow the death of a parent whose home has a reverse mortgage, and then adds in the increased cost of probate fees for the home, as well as the increased time of probate administration which may accompany the home passing by will instead of by trust, along with the fact that probate administration can take up to three to four times as long as trust administration, the decision appears almost self apparent.
“I don’t know why home owners with reverse mortgages, or even just traditional home loans, would consider not having a trust to hold their homes,” admits Platte. “Everything in our experience points to the logic of trust ownership.”