Everyone from former U.S. Senator Fred Thompson to actor Robert Wagner is currently pitching reverse mortgages on television. From the advertisements, these financial transactions appear to be a lifesaver for cash-strapped retirees. However, homeowners should understand that reverse mortgages also carry significant risks.
In basic terms, a reverse mortgage is a special type of loan that allows homeowners to convert a portion of the equity in their home into cash. To apply, homeowners must generally own their home outright or owe little money on an existing mortgage, as well as meet certain age restrictions. Borrowers can elect to receive periodic payments or a lump sum disbursement. They must still pay annual taxes, property insurance, and maintenance or risk default on the mortgage. Most reverse mortgages are non-recourse loans, which means that the lender has cannot pursue any of the borrower’s other assets in the event of default.
Reverse mortgages do not have to be repaid until the home is sold, no longer used as a principal residence, or the borrower defaults on the obligations of the mortgage. At that time, the borrowers must repay all payments, interest, and finance charges. If the borrower dies, the loan must also be repaid, and any remaining equity in the property then passes to the heirs. Any mortgage debt, however, is not transferrable.
While reverse mortgages sound good in theory, they do not always work out as anticipated. In fact, approximately 1 in 10 were in default at the end of 2012.
In addition, many spouses who removed their names from deeds and did not sign mortgage documents in order to meet reverse mortgage age requirements have found themselves facing foreclosure upon the death of their spouses. Lenders claim that the death of the borrower triggers repayment obligations, while the surviving spouses maintain that brokers promised them that they would not be displaced.
The disputes are currently the subject of several lawsuits alleging that lenders failed to comply with the terms of mortgage agreements. The Department of Housing and Urban Development, which insures reverse mortgages, is also facing a suit alleging that agency policies failed to comply with a federal law that specifies that surviving spouses are considered homeowners even if they are not listed on reverse mortgage documents.
The bottom-line is that homeowners should fully consider all of their options before deciding to pursue a reverse mortgage. Like all financial transactions, it carries both risks and rewards.
If you have any questions about reverse mortgages or would like to discuss the legal issues involved, please contact me, Victor Kinon, or the Scarinci Hollenbeck attorney with whom you work.
Supreme Court and Title VII: Implications for Reverse Discrimination
Earlier this month, the U.S. Supreme Court issued a decision in Ames v. Ohio Department of Youth Services vitiating the so-called “background circumstances” test required by half of federal circuit courts.1 The background circumstances test required majority group plaintiffs pleading discrimination under Title VII of the Civil Rights Act to meet a heightened pleading standard […]
Special purpose acquisition companies (better known as SPACs) appear to be making a comeback. SPAC offerings for 2025 have already nearly surpassed last year’s totals, with additional transactions in the pipeline. SPACs last experienced a boom between 2020–2021, with approximately 600 U.S. companies raising a record $163 billion in 2021. Notable companies that went public […]
Short Form Merger: Streamlining the Process for Businesses
Merging two companies is a complex legal and business transaction. A short form merger, in which an acquiring company merges with a subsidiary corporation, offers a more streamlined process that involves important corporate governance considerations. A short form merger, in which an acquiring company merges with a subsidiary corporation, offers a more streamlined process. However, […]
Tariff Response Options for Small Businesses Facing Financial Distress
The Trump Administration’s new tariffs are having an oversized impact on small businesses, which already tend to operate on razor thin margins. Many businesses have been forced to raise prices, find new suppliers, lay off staff, and delay growth plans. For businesses facing even more dire financial circumstances, there are additional tariff response options, including […]
Common Causes of Partnership Disputes and How to Resolve Them
Business partnerships, much like marriages, function exceptionally well when partners are aligned but can become challenging when disagreements arise. Partnership disputes often stem from conflicts over business strategy, financial management, and unclear role definitions among partners. Understanding Business Partnership Conflicts Partnership conflicts place significant stress on businesses, making proactive measures essential. Partnerships should establish detailed […]
Businesses Are Facing Financial Headwinds—A Practical Guide
*** The original article was featured on Bloomberg Tax, April 28, 2025 — As a tax attorney who spends much of my time helping people and companies who have large, unresolved issues with the IRS or one or more state tax departments, it often occurs to me that the best service that I can provide […]
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Sign up to get the latest from our attorneys!
Explore What Matters Most to You.
Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.
Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.
Let`s get in touch!
Sign up to get the latest from the Scarinci Hollenbeck, LLC attorneys!
