Real estate solutions for land-rich, cash-poor seniors
As seniors look to stretch their assets in retirement, they might consider the equity in their homes. Unfortunately for many, that value may have reduced along with the economy.
However, when there is enough equity in the house, it is worth taking a second look to incorporate real estate strategies into the overall plan. These should not involve going deeper into debt. Mortgage payments into your 80s and 90s are a concern. Also, you do not want to deplete, without reason, the equity in your house.
Reverse Mortgage. The immediate thought that comes to mind is a reverse mortgage. With a reverse mortgage, you do not make payments, can continue to remain in your home, and the lender does not recover until after you move out or die.
Payments can be made to you either in a lump sum or monthly, or you can have a line of credit to use as needed.
When I wrote about reverse mortgages before I referred to them as the “last cookie jar.” They are unavailable before age 62 and the value is greater when you are 80 or 85. So this is not ordinarily a tool to use to get out of credit card debt when you are 65. You should also not think of this as a way to get rid of a sizable conventional mortgage.
Fees are relatively high and, beyond a certain point, you would not be able to get a reverse mortgage to pay off an outstanding conventional mortgage.
You should plan to stay in the home for a long time, probably indefinitely. If you move out, the mortgage loan can be called after a year even if you moved because of health.
Private Reverse Mortgage. A second alternative is a private reverse mortgage.
A private reverse mortgage is an arrangement between a senior and usually a family member where the senior can receive income or one or more lump sum payments or even direct payment of her bills or work on her house in exchange for an interest in the house at a later date.
It works best either when there is an adult child who has some available funds to help his or her aging parent or wants to “help out” either with money or with time and effort but also wants to know there is some way to be repaid later, usually when the house is sold.
These are a few circumstances that I have handled where private reverse mortgages worked well.
• A parent cannot afford to pay the bills but owns a house with equity. The adult child (or adult children) contribute monthly toward the parent’s support and take back a private reverse mortgage in the property.
This can even work in a situation where the parent is in assisted living and not at home and the children are contributing to the cost.
They are repaid when the house sells. This has benefits over a regular commercial reverse mortgage since the fact that the parent has moved is not a default.
Also, if the house does not sell immediately, the children still know that eventually they can be repaid. If the parent were later to go on Medicaid, the reverse mortgage between the child and parent is still paid back at settlement on the house and takes precedence over Medicaid or nursing home bills.
• When the house needs repairs or renovations, adult children could either themselves or by hiring outside help such as www.valleydrc.com, make the repairs or renovations and take a reverse mortgage on the property. Again, they are repaid when the house sells. Their parent could remain in the house while they are working or move out to live elsewhere.
• When a parent intends to stay in the home and the family has hired a long-term or live-in caregiver and the children pay for the cost, they could receive a private reverse mortgage to pay them back when the house sells. Again, it takes precedence over Medicaid or nursing home bills.
• When a child lives with a parent or provides caregiving for the parent, she or he could be compensated by having a private reverse mortgage on the property. Repayment, again, is when the house sells.
These are only a few of available real estate tools but provide food for thought.
For more, listen to “50+ Planning Ahead” a weekly radio program on WCHE 1520 on every Wednesday from 4:30 pm to 5:00 pm with Janet Colliton, Colliton Law Assocs., PC, and Phil McFadden of Home Instead Senior Care.
About the Author Janet Colliton
Esquire, Colliton Law Associates, P.C. Janet Colliton has practiced law for over 38 years, 37 of them in Chester County, Pennsylvania, a suburb of Philadelphia. Her practice, Colliton Law Associates, PC, is limited to elder law, Medicaid, including advice, applications and appeals, and other benefits planning including Veterans benefits, life care and special needs planning, guardianships, retirement, and estate planning and administration.