Possible Remedies to Prevent HECM Defaults
The reverse mortgage industry could lament it’s treatment in the media, in the words of Rodney Dangerfield, “that’s the story of my life…no respect”.
NBC4’s consumer reporter dramatically recounts the tale of a HECM borrower who narrowly avoided foreclosure. The borrower’s power of attorney also serves as her live-in caregiver. The caregiver claims she was surprised by a foreclosure notice received in the mail and attempted to pay the insurance premium but the payment was returned because the auction was already scheduled. *UPDATE* I repeatedly pressed an employee with NBC4’s Consumer Union if the homeowner’s insurance company had in fact sent billing notices to the homeowner. His reply was “They acknowledged that they sent bills not in line with an arranged payment plan which is why the error occurred.”
Reverse mortgage borrowers must pay their property taxes and homeowner’s insurance or risk foreclosure. The same requirement applies to traditional mortgage borrowers.For several years reverse mortgage documents have included a clear statement informing borrowers of these obligations and the risks of non-payment. While the media jumps to expose the plight of seniors being. Here are some other points to consider for HECM borrower’s facing foreclosure for non-payment of property charges.
One advantage traditional mortgage borrowers have is the automatic payment of property taxes and insurance from their escrow account. While such an arrangement is practical for those making monthly principal and interest payments it is highly problematic for HECM borrowers facing a sizable reduction in available funds if a lump sum Lifetime Expectancy Set Aside (LESA) is required. Perhaps a better solution for reverse mortgage borrowers would be the implementation of monthly auto-drafts for insurance and an auto-draft into a HECM escrow account to fund property tax payments every six months. If feasible, such an arrangement could avoid the onerous lump sums required for a LESA.