A Surprise HECM Foreclosure?

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Possible Remedies to Prevent HECM Defaults

reverse mortgage newsThe 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.

Download the video transcript here.

7 comments

Don Opeka February 13, 2017 at 7:16 am

I have had HECM borrowers with monthly insurance payment plans in place. They are not acceptable to FHA. FHA requires the borrower to discontinue the monthly payment plan and pay a year of insurance at closing. I had one borrower go into insurance default because her monthly payment was disrupted by the required payment and then the payment from the title company was not properly credited by the insurance company. Part of the problem is FHA rules that treat HECMs the same as traditional forward mortgages. We do both. HECMs and HECM borrowers are different from traditional forward mortgages and traditional FHA borrowers!

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Cliff Auerswald February 13, 2017 at 7:46 am

Task force Shannon! Great work Buddy

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brett kirkpatrick February 13, 2017 at 10:50 am

Like a forward mortgage escrow account, the LESA makes the tax and insurance payments when due — so the” lack of available funds” with a LESA is not an accurate point of departure for preventing so-called accidental foreclosures.
Presumably, the servicer is faithfully fulfilling their responsibility to make those timely payments, as does a forward mortgage servicer with trusteeship of an escrow account.
There may be statutory impediments to HECM escrow accounts per se.
Private companies are now beginning to offer payment services (for taxes and insurance) to HECM borrowers who might need this money management assistance.

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The Positive Realist February 14, 2017 at 10:09 am

Interesting as to property charge services now being offered by servicers.

As to how LESAs work, there are two types. A fully funded LESA works as indicated but a partially funded LESA does not.

The partially funded LESA makes the LESA payout to the borrower who then is responsible to pay property charge obligations.

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The Positive Realist February 13, 2017 at 11:43 am

We always try to answer mortgage payment issues with existing mortgage solutions but let us step back for a moment to look at the broader picture and perhaps a better solution.

As people age not only do all seniors lose motor skills but many become less dependable because of memory issues. If property tax and homeowner’s insurance obligations are not being met timely, what is happening with water bills, gas bills, electrical bills, and, yes, even trash collection bills? Then comes the question about other monthly or periodic bills such as credit cards, HOA dues, car insurance bills, therapeutic care, Medicare supplemental insurance payments, etc.?

Most of us cannot remember what we forgot and had to cure; that characteristic only worsens with age. In these situations it is best if those with vested interests in the care of the seniors such as heirs and children or other relatives get involved and find financial planners or bookkeepers who provide bill paying services along with duplicate notifications to both the senior and a responsible person with vested interests in the senior whenever a problem arises.

Forgetting to pay property taxes and insurance may only be the warning about how things really are. When an ice peak is seen in the water that is a warning of even more to be concerned about.

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Cliff Riddle February 13, 2017 at 4:00 pm

Good thing I read these comments. At age 80
it reminds me how foreget full I am suposed
to be. My spelling has gotten worse and there wasn’t room for that. I would fore get to eat
but my stomack reminds me . I keep finding
myself in a room wondering what I was there for. So far when it happens I have all my close on. It erks my ass that some people have that one shoe fits all attitude about seniors. It could not be these Young Lawyers That Work for you Know who that
need to protect these old dumb farts like me?

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The Positive Realist February 14, 2017 at 10:19 am

Cliff,

I am almost 70. My father is in his late 90s. My father has never had problems making his payments timely until 2 years ago.

Over the years watching my friends’ parents get older, I have seen disinterest, senility, and even Alzheimer’s disease set in. You seem just fine but that is not true of all of your elders or even those in their 60s and 70s.

The effects of aging are NOT uniform except as of today there is no earth dwelling and living human over the age of 170 years old. Generally as seniors near 100, they need more and more help, especially if they want to age in their home as my father is.

Reply

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