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When reverse mortgages are part of estate administration

Nevada homeowners over the age of 62 may be able to take advantage of a reverse mortgage to help fund end-of-life needs without giving up a home. According to recent reports, as such action is growing in popularity among seniors, confusion about reverse mortgage terms often brings an unnecessary burden to heirs during the estate administration processes.

According to reports, reverse mortgages provide funds to an individual that don't have to be paid back unless the person dies or moves out of the home. Individuals do pay into a reverse mortgage insurance fund as part of the deal.

If a family member with a reverse mortgage dies, heirs have 30 days to take action on the home. The basic decision is to either pay off the mortgage or allow the bank to foreclose on and take ownership of the property. According to a news report, a growing number of families are seeing homes fall into foreclosure due to confusion and inaccurate communication about reverse mortgages.

Though families have 30 days to make a decision about a home, reports are that they have six months to obtain financing to purchase the home if they decide to do so. Additionally, heirs should be able to pay 95 percent of the home's current value as satisfaction of the reverse mortgage.

Two senators have written a letter to the Department of Housing and Urban Development, asking officials to look into issues regarding reverse mortgages. According to the senators, individuals are not being properly presented with options following the death of a loved one and are being required to pay mortgages in full to retain ownership of their homes. According to reports, the insurance fund that is paid into by reverse mortgage recipients is supposed to cover shortfalls between current values and the amount of the mortgage, which is important at a time when many property values have dropped.

Financial decisions during end-of-life years may have an impact on your heirs and estate. It's important to evaluate each decision, ensure the proper document is in place and communicate choices to your heirs so they are prepared to deal with issues in the future.

Source: US Finance Post, "Two Democrat Senators Express Concerns Over How Reverse Mortgage Rules Affect Heirs" Christine Layton, May. 01, 2014

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