| Dear Mr. Premack: I understand
that it is legal in Texas now to do a reverse mortgage. Can you tell us
how such a mortgage works legally? I understand that before a reverse
mortgage can be taken out, the homeowner needs to have financial
counseling. Who does that type of counseling? Thanks – G.A. via Email
Reverse Mortgages are often of greatest interest to Seniors who have
extensive equity in their homes. They allow monthly payments to be made
from the lender to the homeowner, and are typically on between
30-50% of the total home equity. The owner can spend the money for any
purpose. The loan must, of course, be repaid – but not until either:
1. All of the borrowers (both husband and wife) have died; or
2. The homestead property securing the loan is sold or otherwise
transferred; or
3. All borrowers cease occupying the homestead property as a
principal residence for more than 12 consecutive months without prior
written approval of the lender; or
4. The borrower defaults on the loan by failing to pay property
taxes or by failing to keep the property insured.
The 1997 law, which was the first Texas law to allow reverse mortgages,
made them available to any Texan age 55 or older. In 1999, the legislature
changed the law to conform to federal regulations, so currently only those
age 62 or older (or those whose spouse is 62 or older) can apply for a
Texas reverse mortgage. In addition, these rules must be followed:
Ø The reverse mortgage lien must be voluntary and both spouses
must sign it. It is not possible for only one spouse, acting alone, to
place a lien against the homestead unless that spouse either a) has a
Durable Power of Attorney from the other, or b) is the court-appointed
Guardian of the other.
Ø The loan must be without recourse for personal liability
against each owner. The lender can only recover its funds by foreclosing
on the home.
Ø If the lender doesn’t live up to its end – it fails to make
loan advances as contracted and doesn’t cure its default as required in
the loan contract – then the lender forfeits all principal and interest
of the reverse mortgage.
The Texas constitution further requires that before signing a reverse
mortgage, the owner must attest in writing that he or she received
counseling on the advisability and availability of reverse mortgages. The
counseling must include a discussion of other financial alternatives. You
can call on your attorney (and yes, I am available to help) or call on
your financial planner to receive the required financial counseling. |
