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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.

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.

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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