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Did you or someone you know get a letter about DiTech’s Chapter 11 Bankruptcy?

You’re not alone. We’ve been getting lot’s of phone calls from folks asking what it is and what they need to do about it.

First, a little background…

DiTech, the parent company of RMS (Reverse Mortgage Solutions) is one of the largest servicers of reverse mortgages in the United States. As part of it’s bankruptcy proceedings it is required to provide certain notices to all of it’s stakeholders. This letter (below) is that notice. There is a pretty good chance if you have a reverse mortgage, your loan is being serviced by RMS.

Is there anything I need to do?

If your loan is being serviced by DiTech or RMS there is nothing you need to do. Just like with a traditional mortgage, if your lender or servicer can no longer service your loan, it will “sell” the servicing rights to your loan to another company. This can happen by choice or when a servicer closes it’s doors or files for bankruptcy protection as is the case here. The impact to you as a borrower is no different. Servicing will transfer behind the scenes, it should all be seamless to you.

What is the impact to me?

If your servicing gets transferred, you will receive notice of the transfer, your statements will be mailed by someone new and the number you call to reach the servicing department will change but that’s about it. Nothing about your loan contract changes. Whoever services your loan is still bound by all of the same guidelines and loan documents you signed at closing. The deed of trust, note loan agreement, etc. are contracts. Even if someone else purchases the contracts, the terms do not change, all of that stays with your file as long as your loan remains outstanding.

If you have an FHA HECM reverse mortgage, your loan is also insured by the federal government, HUD will step in if necessary to ensure you you continue to receive funds according to the terms of your loan.

Bottom line…

With regard to this issue, there is most likely nothing you need to do or be concerned about and I am happy to answer any specific questions you may have. That said, I am not a lawyer and cannot give legal advice, as always if you have serious concerns you should should seek professional legal counsel.

Homeowners’ Tax Credit Reminder

Many if not most states offer some sort of property tax relief for owners who meet certain criteria. Surprisingly many of our senior Reverse Mortgage borrowers who meet the qualifications for a reduction say they had no idea it was available and never applied for it.

In Maryland, anyone with household income less than $60,000 may be eligible, but you must apply every year by no later than Sept 1st. It is best however to submit the application by May 1 so that any credit due can be deducted beforehand from the initial July tax bill. Other state and local governments have different requirements.

For example, Fairfax County Virginia’s program for example starts at household income of $72,000 or less for those 65 or older or permanently and totally disabled. Those with $52,000 or less in household income may be eligible for 100% relief. Certainly worth looking into.

More information and the application for the Maryland Homeowners’ Tax Credit Program can be found on the Maryland State Department of Assessments & Taxation’s web site HERE. More info on Virginia’s program mentioned above is available HERE. If you need assistance locating guidelines in other areas, let me know.

Think about someone you know who might qualify for or benefit from this information and please share it with them.

Mailbag: Is Reverse Mortgage interest tax deductible?

Every year around this time I get calls and emails inquiring about the destructibility of Reverse Mortgage interest. The answer is no, yes, and it probably doesn’t make a difference.

Here is what the IRS has to say…

“…interest (including original issue discount) accrued on a reverse mortgage isn’t deductible until you actually pay it (usually when you pay off the loan in full). A deduction for interest paid on a reverse mortgage loan may be subject to the limit on home equity debt discussed in Part II of Publication 936, Home Mortgage Interest Deduction.”

The key here is that you can’t deduct something you aren’t actually paying so if you are NOT making payments on your reverse mortgage, either in lump sum or regular monthly installments the IRS does not consider the accruing interest deductible in the year accrued and the answer is no. It would however be deductible when the loan is eventually paid off which is typically when the house is sold.

If you ARE making payments on your reverse mortgage, whether lump sum, periodic or monthly, then you are paying the interest and your interest would be deductible. In that case the answer is yes.

Does it really matter?

In my experience the vast majority of folks who ask me this question are in a situation where they are utilizing the standard deduction anyway which for 2016 is $9,300 for head of household, 6,300 for an individual or $12,600 for a married couple. Unless your itemized deductions exceed those figures, the lack of deductible interest expense isn’t impacting your income tax filing by even a single dollar. In this case, the answer is… it doesn’t matter.

Nearly 100% of the my clients tell me they itemize but remember, just because you enter a figure on Schedule A, Line 10, that doesn’t mean it is changing the bottom line tax obligation for you. If the standard deduction is more beneficial to you, there is no need to itemize.  For this reason, it probably doesn’t make a difference in most cases.

Disclaimer: I am not an accountant. This is meant for informational purposes only and should not be relied on as tax advice. Always consult your tax advisor.

Sources:

 

 

A Reverse Mortgage to Buy a Home? Here’s How

An article in today’s Wall Street Journal explains how Senior Home-buyers can use a Home Equity Conversion Mortgage (Reverse Mortgage) to finance the purchase of a new home, a loan. Following is an excerpt and a link to the original article.

Reverse mortgages are typically seen as a way for seniors to remain in their homes while drawing income from their property. But a reverse mortgage can also be used to buy a home.

Here’s how it works: Seniors 62 or older buying a primary residence make a down payment and pay closing costs. They then get a lump-sum loan that goes toward the home purchase. No monthly payments are required to pay down the debt. Instead, interest accrues on the loan, and the principal and interest are usually due when the last co-borrower or spouse on the loan moves out or dies.

Most reverse mortgages are FHA-insured loans called home-equity conversion mortgages, or HECMs. The loan amount is a percentage of the home’s appraised value, up to $625,500. That percentage starts at about 52% of the purchase price and rises with a borrower’s age, going up to about 75%.

Read more of the original article here: A Reverse Mortgage to Buy a Home? Here’s How

The author points out that the program is not available for use with new construction, which is a technical issue in the program guidelines.  We have worked through it with many builders and successfully financed many new construction homes using the HECM Reverse Mortgage program.

Where to Retire magazine featured another article about Reverse Purchase featuring one of our borrowers. A PDF of the article is available HERE.

Please contact me directly for more information or questions.

 

NBC Nightly News: Could getting a reverse mortgage help you save money?

NBC Nightly News with Lester Holt broadcast a segment on reverse mortgages on Friday, April 22, highlighting the safety features that have been built into the FHA insured HECM Reverse Mortgage program over the past few years. Click below to watch the story.

 

How to buy a house with a Reverse Mortgage

Using a reverse mortgage to purchase a new home.

We’ve helped dozens of home-buyers move to a more comfortable home or closer to family and friends using this incredible FHA insured loan program available only to homeowners and home-buyers age 62 or older.  Watch this 3 minute video to see how it works.  Visit the Reverse Purchase page for more information.

Paying off a Reverse Mortgage

How do you sell a home that has a reverse mortgage on it?

Recently we have had quite a few questions from realtors wanting to know how to sell a home that has a reverse mortgage on it.  The answer to the question depends on whether or not the property is under water.

If the house IS NOT underwater…

If the loan balance is less than the current property value it is handled like any other sale. There is nothing unusual about paying off a reverse mortgage with one exception: there are certain time constraints the servicer (lender) must – I repeat MUST – follow once the last person on title no longer occupies the home as his/her primary residence. If the property is NOT under water the reverse lender or servicer provides a written payoff to the title agent. At closing the loan balance is paid off – just as it would be with any other lien holder.  After the loan is paid off, any and all remaining equity goes to the seller, which typically is the borrower’s heirs or estate.

If the property IS underwater…

If the loan balance exceeds the property value / sale price it gets a little more complicated. HECM payoffs are not negotiated like other short sales or short payoffs.  The lender must accept 95% of the current appraised value as satisfaction of the lien. HECM loans are non-recourse in nature so the borrower and his/her estate CANNOT be held responsible for any shortfall.  This is true even if the borrower has millions in other assets.  The house repays what it can, and any shortfall is covered by the FHA insurance fund. It is important to understand that this is NOT a short sale… there is no negotiation required or permitted and the lender is prohibited by HUD from accepting any amount less than 95% of the value.

What about non-arm’s length transactions?

The 95% figure noted above holds true for family members also.  If heirs who inherit the property want to keep it, they would be responsible to repay the loan balance subject to a MAXIMUM of 95% of the property value based on the lender’s appraisal. Note that there are time constraints and the clock starts ticking the day the last surviving borrower ceases to occupy the property as a primary residence.

Important note on time frames…

A reverse mortgage technically becomes due and payable on the first day the last surviving borrower no longer occupies the home as his/her primary residence. The clock starts ticking from that date. Under normal circumstances, the borrower or his/her estate have an initial period of six months to pay off the loan. In addition to the initial six months, up to two three-month extensions can be requested (for a total of one year) if more time is needed. Extensions are not automatic; documentation that the home is listed for sale, a sale is pending, etc. will be required in order for an extension to be granted. The lender does not care how the reverse mortgage is paid off, only that it is paid off.  Typically this happens through a sale of the home. However, the loan can also be satisfied by refinancing, cash payoff or other means, if the family desires to keep the property.

Communication is the key

The loan servicer should be contacted IMMEDIATELY!  Reverse mortgage servicers deal with these situations every day and will work with borrowers and family members. However, they can’t help if they don’t hear from anyone. All reverse mortgage servicers send monthly loan statements to borrowers. Those statements should contain all loan and contact information necessary to make contact with the lender.

2014 brings optimism about the real estate market

Consumers Optimistic About 2014 Real Estate Market, More Committed to Buying or Selling This Year

78% of consumers surveyed are optimistic about the Real Estate market in 2014 according to Prudential Real Estate’s Q4 Consumer Outlook Survey. That’s a 5 point increase from the previous quarter and a 15 point jump from just one year ago.

“Consumers understand that the U.S. economy and residential real estate continue moving in positive directions,” said Earl Lee, CEO of HSF Affiliates LLC. “Accordingly, they’re feeling much better about their personal situations and want to take advantage of attractive home prices in many markets and interest rates that remain low by historical standards.”

Normalcy Returning

Lee says normalcy is returning to the market. People are looking to buy for the right reasons… “to gain shelter and security, raise a family and generate long-term wealth.”

See the inforgraphic illustrating the survey findings below and read the full press release here http://bit.ly/1kNYxZH

Things are looking up. 2014 brings optimism about the real estate market.

No More Robocalls?

More than 1 million complaints in 2013

Since 2009 automated telemarketing calls also knows as robocalls have been illegal in the US except for charities, political organizations, schools, and medical professionals.  Last year alone the FTC received more than 1 million complaints but many times these calls originate overseas and are beyond the reach of federal regulators.

FTC challenge yields solutions

In April of 2013 the FTC announced its Robocall Challenge winners.  Two tied for the top spot and shared the $50,000 prize.  One of the winners, Nomorobo is already on the market… and it is completely free. At this time not all carriers support the “simultaneous ring” technology Nomorobo uses. I was able to sign up using my Verizon FIOS lines in just a few minutes.

To see if you are eligible visit NOMOROBO.com.

 

 

Overlooked Property Tax Discounts for Senior Homeowners

Property tax discounts for senior homeowners (and more)

If the government offered to lower your tax rate would you accept the offer?  Would you be surprised to know that many seniors, you, your parents or grandparents are paying more property tax than they need to simply because they are unaware of property tax credit programs they may be eligible for.  For many seniors (and low income homeowners) the savings could amount to thousands of dollars annually.  We work with senior homeowners and home buyers on a daily basis and estimate that fewer than 10% of those that are eligible are receiving or have even applied for the credit.

How it works in Maryland

In Maryland for example the 2013 Homeowners’ Property Tax Credit Program offers all Maryland homeowners credits against their property tax bill if the taxes exceed a fixed percentage of a persons gross income.   The program has been around since 1975 and while there is no age restriction on the program it is of particular benefit to senior homeowners who have seen property taxes rise while income remains fixed.  Eligibility is based on four basic requirements:

  1. You must own or have legal interest in the property (ie: you can’t be a renter).
  2. The home you are seeking a tax credit for must be your primary residence at least six months of the year.
  3. Your net worth, NOT including the value of the property OR any qualified retirement accounts must be less than $200,000
  4. Your combined gross household income cannot exceed $60,000

There are some other restrictions and it is important to note that there is no automatic granting of the credit.  Homeowners MUST apply each year by September 1, but should submit applications on or before May 1 to receive credits due before tax bills are issued in July.

More information on the Maryland Program

More information including a chart showing how the credits are figured and an application is available on the Homeowner Tax Credit page of the Maryland Department of Assessments and Taxation (SDAT) web site.  The current year application is available for download here.

What about in other states?

We are using the Maryland tax credit program as an example here but most states, county and/or local governments have similar programs.  For more information on programs in other locations, try a web search or contact your local tax authority.

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