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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.

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:

 

 

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.

Reverse Mortgages turn 50yrs old. Why no party?

What… no party?

This year the Reverse Mortgage celebrates its 50th birthday, but it is unlikely there will be any public celebrations on its behalf and that’s a real shame.

What is a reverse mortgage?

A reverse mortgage also known as a HECM (Home Equity Conversion Mortgage) plain and simple is a loan that allows senior homeowners 62 or older to borrow or gain access to a portion of the equity in their home.  When the homeowner passes away or moves his/her estate sells the property the loan is repaid.  Any remaining equity goes back to the borrower or his/her estate.  There are no income or credit qualifications and during the term of the loan the borrower is not required to make any monthly payments to principal and interest.  Borrowers can choose to receive funds in a lump sum, monthly payments or they can access funds on an as needed basis through a line of credit. Continue reading

Relocating Seniors Worrying About Financing New Home

Financial concerns top the list for homebuyers 55 and older says Origination News.  Housing starts for 55+ communities expected to rise 30% over 2010 levels…

Origination News – Relocating Seniors Worrying About Financing New Home.

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