Can and should you get a reverse mortgage in order to stop foreclosure of your home? As attorneys like to say, it depends. Normally we file chapter 13 bankruptcy in order to stop a foreclosure, and some of our clients also try to get a loan modification through the bankruptcy court’s loan mod program. A reverse mortgage can save your home from foreclosure, but there’s a good chance that the lender will get your home after you and your spouse die, not your children or other heirs. Additionally, there are restrictions on reverse mortgages, and not everyone is eligible for them.
There are three types of reverse mortgages available in California: federally-insured (FHA) Home Equity Conversion Mortgages (HECM), privately insured reverse mortgages, and uninsured reverse mortgages. The California Department of Real Estate’s website has more information regarding this.
You or your spouse must be at least 62 years old to apply for a reverse mortgage. Furthermore, you must have a substantial amount of equity in your home to qualify. The highest home value that reverse mortgage lenders will recognize is $726,525, so you must owe substantially less for your mortgage than $726,525; any home value above that amount will not be considered and you will not get credit for it when determining your home equity for a reverse mortgage. The more equity that you have and the older you are, the more likely that you are eligible for a reverse mortgage.
The biggest benefit of a reverse mortgage for most people is that you would get to remain in your home without paying mortgage until you sell it, otherwise transfer title to it, or die, so long as you do not violate the terms of the reverse mortgage by doing things like failing to pay your property taxes or homeowners insurance. Some people can get paid monthly in a reverse mortgage (hence the term “reverse” mortgage), again depending on how old you are and how much equity you have in your home.
A reverse mortgage might be the right solution for you, but as you can see there are drawbacks and it won’t work for everyone. If you can’t afford even a mortgage reduced by a loan modification and you’re at least 62 years old, perhaps a reverse mortgage is the right choice. If you are in danger of foreclosure but can afford some mortgage payments, perhaps a chapter 13 bankruptcy along with a loan modification in the bankruptcy court’s loan mod program is the right solution for you. If that’s the case and you are in danger of foreclosure, contact a bankruptcy attorney today to see whether chapter 13 and possibly a loan modification would work for you.