Expert Q&A Archive
What is the best way to assist our parents in avoiding foreclosure?
My brother and I are trying to assist our parents in avoiding foreclosure, and I have a few questions. It really is concerning whether we modify, or whether we take … the Hope for Homeowners loan. We have a servicing company [that] has been identified as a predatory lender or having bad practices and was actually sued by the Attorney General in Connecticut, I think successfully. Can you discuss for older owners that are losing income and facing foreclosure, bankruptcy versus reverse mortgage options? Thank you for the time and the information.
Bettye J. Banks:
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Please, please, please call for an appointment for your parents with a HUD-approved housing counseling agency! You may attend with your parents, or participate in a telephone counseling session, if you so choose.
Your parents probably qualify for a reverse equity home loan. They may not have to worry about foreclosure once they have received their loan, and depending on the loan balance, could receive income to bridge at least a portion of the income gap. The loan will not have to be repaid until the house is no longer their permanent residence. It might give them some significant breathing room.
Be careful though. Should they move out, such as into an extended care facility, the loan could become due. What are their ages and how is their health? Remember that, should you inherit the property, you would have to pay off the balance on the loan if you intend to keep it.
A loan modification may also be an option. If they qualify, it would put any delinquent payments onto the back end of the note, and could even lower the payments, depending on the current balance and the new interest rate.
The HUD website www.HUD.gov
has information on HUD-approved counseling agencies, or contact the National Foundation for Credit Counseling (NFCC) at 800-388-CCCS (2227) or their website www.nfcc.org
for the location of the agency nearest you.
Gail V. Marquet:
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Is there any possibility of them selling their home and downsizing or living with grown children, at least for a limited time before they can find another alternative for housing? I would be very careful in the servicing company if they are eligible for the Hope for Homeowners program. Do a lot of homework and make sure the company is of an excellent reputation or they could end up losing even more than their home.
Connie K. Marmet:
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You've really mentioned 4 different options:
1) Modifying the loan
2) Hope for Homeowners loan
3) Reverse mortgage
To begin with, bankruptcy can carry a number of difficulties as you go forward, so it seems the least attractive of the four options. There may be circumstances, such as a lot of other kinds of debt, where it may be the only solution, but I would try to exhaust the other options before considering it.
Working with your servicer to modify the loan or getting a Hope for Homeowners loan would keep your parents in their home and avoid the long-term negative credit rating consequences of bankruptcy. There are local groups that help prepare homeowners to work through these processes. Knowing terms, having documentation prepared, and understanding different types of modifications in advance of meeting with your servicer is a good idea, and these groups can help you. Since we have reason not to trust your servicer, finding one of these groups would be a good idea. Given that the state has sued the group, you will probably find some good information on the state attorney general's website.
If your parents have a lot of equity in their home, a reverse mortgage may provide liquidity to cover back payments and penalties. While reverse mortgages are an emerging product, one needs to be very careful and fully understand how they work. There have been numerous reports of individuals who have entered into reverse mortgages getting unpleasant surprises later on. Given that the documents are fairly complex, I would advise having an attorney or other trusted professional--who is not involved in the transaction--look at the documents before you enter into a reverse mortgage.
Rebecca Schreiber CFP®:
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The ultimate question in refinancing your parents' home is, “Can they afford home ownership in the long run?” What is a realistic, sustainable path? If there is a lot of equity in the home, and your parents can't afford home ownership anymore, then you may need to create a short-term plan for getting out of foreclosure but then selling the home. A reverse mortgage is a short-term solution but can be expensive, so keep an eye on fees. Beware keeping the home or buying a smaller one if they truly can't afford it or [don't] have the energy to maintain it for the long-term. Good luck!