If this is not the best board for this post, please redirect me. But I’ve seen several of the relevant topics (reverse mortgage, etc.) discussed in threads on this board. Apologies in advance for what has become a long post, but I’m hoping for some helpful feedback on this situation from more objective observers here.Without giving too much backstory and trying not to cast judgment on how she arrived in this circumstance, an elderly relative (80 years young!) on a limited income finds herself several months behind on her mortgage and her HELOC, and I am in a position to help evaluate her options. I have already helped her apply for various sources of assistance to bring in additional money if possible, but it is apparent that she urgently needs more major changes. My goal is to get her into as sustainable a position as possible, realizing that she is highly likely to encounter health-related expenses. First, the good news: She makes enough between Social Security and her pensions that she has enough to cover her living expenses and a reasonable housing expense. For example, she could rent a small apartment or condo and be completely sustainable on just her income. She has about 50% equity in her home. The house can be considered only as a financial asset and her current shelter; none of her children would continue to own it if inherited. Her income is not low enough to qualify for most assistive programs (e.g., Medicaid , SNAP, energy assistance), but is low enough that she normally does not owe taxes and qualifies for a few state and county programs.Now the bad news: Because she has insisted on maintaining her current residence, many years ago she did a cash-out refinance of her mortgage (5% APY), then took out a HELOC (at a fixed rate of 6%), and has since spent down all her savings (and done a round robin of asking for money from various relatives over a period of years) paying on these. The payments on these alone are about 125% of her monthly income, leaving her perpetually behind on bills and living expenses. She is now behind on her mortgage and HELOC by about 4 months and has a small amount of additional unsecured debt (about 300% of her monthly income). Because of her credit history and her current income, she will not be able to refinance these into a standard mortgage.Options I am considering with her:1. Do nothing. Allow her to remain in default and eventually go into foreclosure. She will likely lose all equity in the home (assuming the foreclosure sale does not realize anything above the debts). But she can live for free in the home until they evict her and in the meantime find an apartment and save what she is currently spending on her mortgages. This timeframe may be somewhat extended because of the current state of the world, and because the loan was recently sold to a new servicer and she is in a “transitional period” with that new lender for the next month. I have prepared an application for mortgage assistance with her servicer (will need to submit it this week), but in speaking with a credit counselor and a housing counselor, they advised that it is very unlikely a modification would be granted because of the large gap between income and the payments. They suggest this would only buy a few days worth of time, but I assume it is better to have an application on record than not.2. Sell the house and quick. Because the house is not currently anywhere close to “show worthy” (even via pictures) and the current environment prevents in-home showings anyway, I think she will have a very hard time getting an offer through a regular retail real estate brokerage. Given the state of the world right now, this would be a long and expensive process to get the house ready and find a buyer. I estimate it would take about 10% of her equity value (and 23x her monthly income) to carry her current mortgage for say 6 months and get the house into a shape that it would realize something close to its full market value (as currently estimated; this could change!). In a normalized world, it might realize 70% of that valuation in its current state. I have explored cash buyers, but because they appear to have many opportunities right now, the offers would only roughly cover her debt. A cash offer at the current time may therefore be about equivalent to foreclosure in terms of money realized.3. Reverse mortgage. Despite all the warnings I have read about the high fees and steady loss of equity, this may be the best option in her situation. The expenses and fees would be about 1 year worth of her current housing payments and could be financed so that she’d have no upfront costs. It would eliminate her current housing costs so that she could pay off the other debts and then gradually save and get the house positioned to sell, assuming the market recovers somewhat. If the market doesn’t recover for some time, she can at least stay in the house indefinitely. Because of her poor payment history, they are including a life expectancy set aside (LESA) that would cover the insurance and taxes, so no worries about her losing the house because of failure to pay these. The concern I have is that because of the LESA, they are using what I consider an aggressive valuation for the house so that she will receive enough to pay off the current mortgage and HELOC. If the appraisal comes back lower than this, this option will likely fall through because she does not have sufficient funds to close if she can’t finance the costs. (If only a small amount is needed at closing, I could probably gift her that money.)4. Caregiver mortgage. This is an option I hadn’t really heard of before, but essentially it sets up a loan from family or others (caregivers) and takes a position against the equity in the house. We are not in a position to loan her enough to pay off the mortgage or HELOC, so as I understand it this loan would take 3rd position behind those. The amount here would allow her to cover about 16 months of mortgage payments, with the idea that she would sell the house before that. A shorter time frame would be necessary if she uses some of the money to get the house into saleable shape. The concern I have is that she will be unwilling or unable to get the house sold in that timeframe, and we’ll be right back to the foreclosure option (and because of the added debt against the equity, a reverse mortgage will no longer be feasible unless the house has appreciated A LOT in that 16 months). I also worry that if she ends in foreclosure, we will not have enough leverage to ensure that the caregiver mortgage is covered by the sale price. If we don’t use this option, we could potentially use that money to support her over a longer time frame, but it would be a gift as we would not have a position against her equity. Links on Caregiver Mortgages:https://www.forbes.com/sites/nextavenue/2015/06/08/a-new-way...https://www.nationalfamilymortgage.com/lend/retire-in-comfor...Any options I have missed? I can’t just gift or loan her money indefinitely to carry her current (clearly unsustainable) mortgages without any security. Having her move in with family is not currently an option any of the parties want to consider.So, I am trying to weigh rescuing her equity versus getting her to a sustainable long-term position. And weighing the investment it might take from us to help her realize that equity versus conserving that money to help her in the future if needed. My current thinking is that we aggressively pursue the Reverse Mortgage, and if that falls through, we sell to a Cash Buyer if the amount would leave her with any equity; otherwise, we allow her to go into Foreclosure to conserve cash and at least she should be in a sustainable position going forward.Any thoughts, comments, or ideas are welcome. Mostly I am looking for additional sets of eyes on this situation so that I can guide her to the best possible outcome given the circumstances. She has a history of not taking initiative to help herself and then seeking assistance at the worst possible times, but I feel fortunate, especially at the current moment, to be in a position to offer some advice and hopefully help her arrive at a sustainable outcome. Thanks for any feedback!
The "Taking Care of Parents" board might be helpful. https://boards.fool.com/taking-care-of-parents-116503.aspxMeanwhile, off the top of my head:- See an estate planning attorney so you can have Power of Attorney and legally help with her finances.- Good job on investigating options for the short term. Suggestion: see an attorney who specializes in eldercare* to get an "additional set of eyes." I think it'd be good to get expert advice from someone who's seen this play out long-term. Your relative might live another 20 years (or more).My goal is to get her into as sustainable a position as possible, realizing that she is highly likely to encounter health-related expenses.Glad you recognize that health-related expenses are coming. Also, caregiving expenses (not covered by Medicare) are coming. How much help does she need with IADL's and ADL's already? Checklist: https://www.seniorplanningservices.com/files/2013/12/Santa-B...If you're lucky that "cannot do" "finances" is the only item, then that's nice for now, but as time goes on she'll probably need more and more help with other things.So, looking ahead, I don't know if an apartment will be sustainable, unless you're already factoring in caregiving fees. For example, for my dad, family did a bunch of work, and after awhile we also brought in agency help ($23/hr, 4-hour shift min, several days/wk). As the years went on, he reached a point where he couldn't live alone, and in-home help 24/7 was prohibitive, so he moved to an Assisted Living (AL) place.More info available from her local Area Agency on Aging: https://eldercare.acl.gov/Public/About/Aging_Network/AAA.asp...Also, here is a (long) story about an older woman who was ultimately able to stay in her apartment for quite awhile, and what it took: https://www.saturdayeveningpost.com/2020/03/better-medical-c...she has insisted on maintaining her current residenceHow often have we all heard "I'll leave here feet first!" Given that she can't afford her house, is she, now, at least willing to consider an apartment? Or AL?Some people do remain in their own house or apartment until the end, but personally I'd want her to leapfrog the "apartment" step and just go into AL. Ideally, she could move to AL, taking what she most likes, and (AL-recommended) companies can help with the move (sorting & packing, arranging a bridge loan) and clean the house to prep it for sale. (It'll be next to impossible to sell the house before she moves.)The catch, of course, is these are not ideal times. You can't even tour AL places, and many aren't accepting new residents anyway. However, if you fix up the house, you could sell it. So maybe an apartment, temporarily, while you prep & sell the house would be doable.But be careful. I had a friend whose mother moved to a senior apartment, and it quickly became apparent that she needed AL. But, without consulting daughter, the mother signed a 2-year lease...* Regarding eldercare atty's, some are helpful, the one I saw was not. His purpose was to make Dad Medicaid-eligible, and to that end he advised that Dad move to a more expensive house, and if he had any money left over from that, give it all to his kids. Which would've been a disaster, so we said no thanks. So, good luck.
A couple thoughts (sorry about few solutions):1. If her mortgage and HELOC payments are 125% of her income, she can't stay there. She could force the bank to evict her, so I suppose she can stay there a while, but that seems terribly stressful. 2. Since she didn't keep the house in sellable condition, she's not going to be able to get what she or her relatives "wish" the property is worth.3. If the bank forecloses, they'll have incentive to sell the house for however much she owes, and do it quickly. They *don't* have an incentive to hold out for more than that so that this woman gets some money.4. What's the worst case eviction scenario? Is she out on the street with nowhere to go, or will one relative (or several relatives sequentially) take her in? If the latter, it would be better to transition there sooner, because hurriedly trying to move out of a foreclosed house won't be convenient.5. If she has to move to an apartment or move in with relatives, there's going to be a few tons of priceless stuff...that nobody will want, even for free. It can be an enormous problem to get someone to take just one room's worth of their lifetime's accumulation, but it'll be even worse under conditions in item 4. I knew a guy who collected depression-era glassware, like plates and glasses, etc. Going back to the 1960s and '70s, he paid quite a lot to have an extensive collection of complete sets. Then, the 2010's rolled around, and the internet made that a buyer's market PLUS nobody even wants to collect that stuff. He ended up giving a restaurant the butter dishes and sugar bowls and throwing out the rest. That whole process will be rough on her when the value of the doilies that her great aunt brought from the old country is zero.6. An infusion of cash could help her stay in her home, maybe not for 10 years, but long enough to get it sellable and for the quarantine situation to dissipate. Where would that cash come from? All I can think of is from her relatives who don't want to house her because she got evicted. There's more I don't know about this situation than I know, so I put this idea out there as "mathematically possible" but certainly not a good idea.
...It can be an enormous problem to get someone to take just one room's worth of their lifetime's accumulation...Downsizing is hard. Companies that specialize in this can help, by providing neutral 3rd parties to help the downsizer go through her things and select what to keep.Or so I've heard. When Dad went to AL, the idea was it would be temporary and then he'd go back to his house, so we brought very little. Later, when it was clear it wasn't temporary, and I was emptying his house, I considered bringing things to him one box at a time and asking what he wanted to keep, but I'm 100% sure his answer would've been "all of it!" so I decided against that. My next idea was to put everything into storage (less expensive than keeping the house), so that if he asked for anything in particular I could find it and bring it to him. So a storage unit might work for your relative.Very luckily for me, it turned out Dad's memory declined to the point that he didn't remember Mom (they'd been married over 50 years), his old neighborhood, his house, or anything in it. So I didn't get a storage unit, just sent a few things to siblings (whatever they wanted and then some), and everything else to Goodwill or the landfill. It was excruciating, throwing things out that weren't mine to throw out, erasing all evidence that he'd lived there, basically erasing his life. Murder, murder most foul! I'd always expected I'd have to do it at some point, but not while he was still alive.The only silver lining is that we don't have the expense of a storage unit. Dad's SS and pension don't quite cover the cost of AL, so the less money spent on storage the longer his savings will last. (I hope his savings last as long as he does. If they don't, then it'll be my savings or Medicaid.)
How does her going BK impact the picture.First get somewhere else to live, then go BK or move in with her children.At 80 it isn't much longer that she can live on her own.
Depending on the location and the condition of the property (I realize you said she was behind in maintaining it), there may be a real estate investor that would have a creative solution. Perhaps the investor would buy on option on her house that would give her additional monthly income or another idea would be to trade her house for something smaller like you mentioned a condo, etc., The 50% equity is good and if the property is in a nice area the need for repairs might not be a deal breaker. Contact a local REIA (Real Estate Investors Association) or a Real Estate exchange group. In particular the REIA will know of any nearby investors that can offer unique acquisition options that benefit both parties. For example, there is one in the Tampa area that is very well known for creative transactions. These type of transactions can occur very quickly.
Because she has insisted on maintaining her current residence, many years ago she did a cash-out refinance of her mortgage (5% APY), then took out a HELOC (at a fixed rate of 6%), and has since spent down all her savings (and done a round robin of asking for money from various relatives over a period of years) paying on these. The payments on these alone are about 125% of her monthly income, leaving her perpetually behind on bills and living expenses. She is now behind on her mortgage and HELOC by about 4 months and has a small amount of additional unsecured debt (about 300% of her monthly income). Because of her credit history and her current income, she will not be able to refinance these into a standard mortgage.Are the payments that are 125% of her monthly income that high because of fees and late charges, or is the P&I plus escrow without fees and late charges up to that amount? If the payments are that high due to fees and late charges, there may be some hope of asking the lenders for a modification. Have you asked the current lender(s) about modification possibilities?3. Reverse mortgage. Despite all the warnings I have read about the high fees and steady loss of equity, this may be the best option in her situation. The expenses and fees would be about 1 year worth of her current housing payments and could be financed so that she’d have no upfront costs. It would eliminate her current housing costs so that she could pay off the other debts and then gradually save and get the house positioned to sell, assuming the market recovers somewhat. If the market doesn’t recover for some time, she can at least stay in the house indefinitely. Because of her poor payment history, they are including a life expectancy set aside (LESA) that would cover the insurance and taxes, so no worries about her losing the house because of failure to pay these. The concern I have is that because of the LESA, they are using what I consider an aggressive valuation for the house so that she will receive enough to pay off the current mortgage and HELOC. If the appraisal comes back lower than this, this option will likely fall through because she does not have sufficient funds to close if she can’t finance the costs. (If only a small amount is needed at closing, I could probably gift her that money.)Ask if, instead of the LESA, she could do a monthly escrow payment to cover the taxes and insurance. Yes, it would be a payment that she would have to make, but given that she doesn't usually have to pay any property taxes, I doubt it would be a significant payment.AJ
I am just circling back to this to express thanks to those who offered thoughts and ideas.I spent a lot of time speaking with real estate investors, cash buyers, and mortgage brokers on her behalf and collecting all the necessary documentation and helping her with financial counseling sessions. Some positive ancillary developments: 1) trust-building with her, to the extent that we are now in the process of putting together a PoA; 2) confidence that even in its current state the house could sell for about what I thought (~70% of its appraised value) with an extended move-out time frame - that may be helpful later on; 3) a greater apparent willingness on her part to consider alternative housing arrangements.Ultimately, we decided to go the reverse mortgage route as her health doesn't necessitate an immediate move-out and there is still a large amount of uncertainty about where or when she could move into senior housing. I admit to previously thinking that reverse mortgages are almost always a terrible idea, but this has shown me that they can be a very good solution for certain situations. She would be far better off financially if she had done it some time ago. While the up-front costs are high, they were all financed into the loan amount. Even so, she was able to reduce her blended mortgage rate from 5.3% to 3%, which represents a savings of 21% of her annual income, whereas she was not eligible for a traditional refinance due to her credit and income. Her predictable out of pocket housing costs have gone from 125% of her annual income to just 5% of her annual income (insurance only, as we qualified her for a property tax waiver), with the reverse mortgage accumulating an additional 33% of her income in interest (payable at house sale or death). I calculate that if she lives in the home for 3 years, she will have come out ahead, or if she sells the home for just 5% more than the offers we were contemplating (at 70% of appraised value), she will break even. She now has sufficient income to pay her on-going bills, chisel away at the small amount of medical debt she currently has (which we will try to negotiate), and even start saving for coming, inevitable expenses. It also gives her a small line of credit she could draw upon in an emergency, whereas she had maxed out her previous HELOC. Her relief is apparent.The Caregiver Mortgage option turned out not to be possible, since the company that offers them does not operate in her state and did not respond to requests for referrals to similar companies (not that they have any obligation to do so). I did realize that the Caregiver Mortgage is essentially equivalent to an inter-family loan, which a lawyer could help set up, but provides some additional formalization and servicing. Such a loan was not a preferred solution in any case.Thank you again the helpful replies and for giving me a place to work through the options. Hopefully the experience and knowledge gained from the process will allow me to offer the same to others.
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