Splitting Up With A Reverse Mortgage

I helped Tim, 76, and Carrie, 74, (not their real names) buy a home with a reverse mortgage over 5 years ago. They were not married at the time and still aren’t.

Five years ago, they combined their resources to purchase a new home together. Carrie put down about $70,000 and Tim put down about $65,000. They never made a single payment on the mortgage and just paid taxes, insurance, and maintenance of the home.

Unfortunately, their relationship has come to an end. If you are thinking “This sounds like a mess of epic proportions!” you are right. A split like this is extremely brutal especially when both Tim and Carrie are living on just Social Security.

Carrie left the home and is living with a relative. Tim stayed in the home and wants to keep it. Carrie wants her half of the equity.

This is really crazy! Carrie’s half of the equity is approximately $30,000 more than what she put down initially. That’s crazy because neither she nor Tim made mortgage payments for over 5 years. They just paid taxes, insurance, and maintenance of the home.

Tim had two options. The first was to sell the home. The problem was that he had nowhere else to go, he needed a place to live. This was also the most expensive option and would have netted them each about approximately $8000 less than the second option.

The second option was to refinance the reverse mortgage into another reverse mortgage. Not only was this option significantly less expensive than selling the home, but this would also solve the problem of Tim needing a place to live. However, it was not the perfect solution.

As you know by now, with a reverse mortgage, the amount you can borrow is based on a limited percentage of the home value. So, even though there was roughly $200,000 in equity, Tim would only get access to about roughly $40,000 in loan proceeds. Well short of the $100,000 Carrie needed and wanted. Tim, had to sell his boat, hot rod and other assets in order to come up with enough cash to pay off Carrie.

In the end this all worked out well. Tim was able to keep the home and has a place to live. Carrie is flush with cash and has more cash than if they sold the home. Was it a perfect solution? No. But it was the best solution for both of them.

In my new book I have a whole chapter dedicated to divorce and how to use the reverse mortgage strategically to put spouses into a more even and balanced financial situation. Give me a call or shoot me an email and I will mail you a copy of my newest book titled “The Plan B Retirement Strategy – The Ultimate Guide to Strategic Use of Housing Wealth*” – You really can’t beat the price since they are free.

About: Matt Allen is a reverse mortgage specialist with Reverse Mortgage Funding. He is the author of 2 books about reverse mortgages, provides continuing education to real estate agents, financial planners, insurance agents and attorneys. He has been a featured guest on both radio and TV talking about reverse mortgages. He has also written articles about reverse mortgage for local and national publications.

This newsletter is intended for financial professionals only and not for consumer use.

This material has not been reviewed, approved or issued by HUD, FHA or any government agency. The company is not affiliated with or acting on behalf of or at the direction of HUD/FHA or any other government agency.

*Reverse Mortgage Funding LLC makes no warranties concerning the accuracy or completeness of any of the information contained in these materials, and the content does not necessarily reflect the official policy or position of RMF.

Charges such as an origination fee, mortgage insurance premiums, closing costs and/or servicing fees, if applicable, may be assessed and will be added to the loan balance. As long as you comply with the terms of the loan, you retain title until you sell or transfer the property, and, therefore, you are responsible for paying property taxes, insurance and maintenance. Failing to pay these amounts may cause the loan to become immediately due and/or subject the property to a tax lien, other encumbrance or foreclosure. The loan balance grows over time, and interest is added to that balance. Interest on a reverse mortgage is not deductible from your income tax until you repay all or part of the interest on the loan. Although the loan is non-recourse, at the maturity of the loan, the lender will have a claim against your property and you or your heirs may need to sell the property in order to repay the loan, or use other assets to repay the loan in order to retain the property.

? 2022 Reverse Mortgage Funding LLC, 1455 Broad St., 2nd Floor, Bloomfield, NJ 07003, 1-888-494-0882. Company NMLS ID # 1019941. www.nmlsconsumeraccess.org. Not all products and options are available in all states. Terms subject to change without notice. Certain conditions and fees apply. This is not a loan commitment. All loans subject to approval. L4217-Exp012023