Foreclosure is a scary thought to many senior citizens.  Often, our elders have built their homes with their own hands, or spent thirty or forty years paying on them diligently.  They are reluctant to leave, reluctant to sell, and reluctant to burden their families.  As a senior citizen, this is especially frightening considering they do not have the time a younger person does to recover from something as unfortunate as a foreclosure.  In fact, many seniors exacerbate their situation by remaining silent about it.  They don’t want to tell people that they are in trouble.  They often refuse to speak to financial advisors, foreclosure attorneys, or credit counseling services.  This is evidenced resoundingly by the number of experienced foreclosure attorneys in Long Island accustomed to discovering that seniors often have unexplored options available to them.  Seniors are proud, and they should be.  They have maintained themselves on their own their whole life, and even had others rely on them for support, so why should they now reveal what might seem to be weakness?

As a senior citizen’s financial situation spirals downward, at some point they will likely be approached by someone offering them a reverse mortgage.  Many people are not even aware of what this is, or if they are, they have gross misconceptions about it.  However, the fact remains that a reverse mortgage is often then best way to alleviate financial distress and the threat of a foreclosure.  In very simple terms, a reverse mortgage is where a bank pays you to live in your home.  If you are 62 years old or older and have enough equity in your home, the equity can be used to pay-off the remaining balance, and provide you with a steady stream of income as long as you own your home.  In fact, you do not need good credit or even a source of income in order to qualify for one of these loans.    

For example, let’s imagine Shelly, a 70 year old who owns a beautiful home valued at $300,000.  Shelly owes $50,000 on her mortgage, but is struggling to pay it because of mounting healthcare expenses.  With a reverse mortgage, the bank “loans” her the amount of equity built up in the house.  In this case, the bank would pay-off the $50,000, and then start making payments to Shelly every month based on the remaining equity.  Shelly will be entitled to this guaranteed income each month as long as she lives in her home.  The bank will not own the home.  Upon Shelly’s eventual passing, the family will be allowed the opportunity to pay the bank the amount the bank paid to Shelly over her lifetime, and the family could then keep the home.  Conversely, the bank could sell the home, repay itself, and give the difference to the family.  If the home continues to increase in value and eventually builds excess equity again, the family will be given a variety of options. 

These rules and regulations are different from state to state, and vary by lender.  For this reason, it is wise to consult with an expert prior to making this decision.  The point, however, is that a great deal of the myths surrounding reverse mortgages are exactly that- myths.  Reverse mortgages were created and sanctioned by the federal government as a way to assist our grandparents and other elders.  It is safe, reliable, and can be used whether you are in financial distress or not.             

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