Reverse Mortgage LOC

[Atticus Finch Foe]

What is the name of your state? Texas

When a reverse mortgage is established with a line of credit, when is the line of credit amount secured by the property it is being loaned against? Is it secured when the loan closes or is it secured only at the time the line of credit money is disbursed (advanced)?

 

[FlyingRon]

It would depend on the lender. Most would insist that the security instrument be in place at closing.
Why does it matter to you? If you take out a reverse mortgage LOC and never draw on it and then you have the triggering event (you move out of the house), there's nothing to satisfy.

 

[LdiJ]

What is the name of your state? Texas

When a reverse mortgage is established with a line of credit, when is the line of credit amount secured by the property it is being loaned against? Is it secured when the loan closes or is it secured only at the time the line of credit money is disbursed (advanced)?

In a way, its both. It is secured when the line of credit is established, but for all practical purposes, that is kind of a moot point until the line of credit actually has some money dispursed from it. The purpose of the lien against the property is for the creditor to eventually get paid back. If no money has been dispursed, there is nothing to pay back.

 

[adjusterjack]

If no money has been dispursed, there is nothing to pay back.

However, I think a certain amount of fees and closing costs would have been paid from the LOC so there is already secured debt from day one.

 

[FlyingRon]

I can't vouch for reverse mortgages, but even regular home-equity LOCs have the security instrument in place from the outset. Of course, nothing says it can't be done later. Don't get me started on my wife's Chase mortgage fiasco.

 

[Atticus Finch Foe]

The situation is that a couple (both are bowers on the loan) took out a reverse mortgage with a LOC. Initially took an amount to pay off existing mortgage, closing costs and cash with a line of credit remaining. One spouse died and their interest in the property passed to children from a different marriage. Surviving spouse stayed in the home as life tenant and continued using the line of credit for living expenses. At the second spouses death the property is sold, mortgage paid off with some remaining equity. There is a dispute between the two sets of heirs as to which estate is responsible for the mortgage.

 

[LdiJ]

The situation is that a couple (both are bowers on the loan) took out a reverse mortgage with a LOC. Initially took an amount to pay off existing mortgage, closing costs and cash with a line of credit remaining. One spouse died and their interest in the property passed to children from a different marriage. Surviving spouse stayed in the home as life tenant and continued using the line of credit for living expenses. At the second spouses death the property is sold, mortgage paid off with some remaining equity. There is a dispute between the two sets of heirs as to which estate is responsible for the mortgage.

I think that this one is likely too complicated for an internet forum to answer. Although for the spouse to continue to use up equity in the home for living expenses seems off to me.

 

[adjusterjack]

There is a dispute between the two sets of heirs as to which estate is responsible for the mortgage.

I think it's more a dispute as to who gets the surplus when the mortgage is paid off.

Although for the spouse to continue to use up equity in the home for living expenses seems off to me.

Seems OK with me. That's what reverse mortgages are for.

 

[LdiJ]

I think it's more a dispute as to who gets the surplus when the mortgage is paid off.



Seems OK with me. That's what reverse mortgages are for.

Yes, but she was only the life tenant. She was actually using up the remindermen's equity.

 

[adjusterjack]

Yes, but she was only the life tenant. She was actually using up the remindermen's equity.

What I get from post #6 is that they were both owners and borrowers.

 

[LdiJ]

What I get from post #6 is that they were both owners and borrowers.

I get that. However, she basically used the remainman's equity to pay for her living expenses, and her estate now wants the remainderman to eat the balance of the reverse mortgage, instead of it coming from her estate. She spent the money and her estate wants the remainderman to pay it back. That may be legal in a life estate situation, I don't know one way or another, but its certainly not just.

 

[Atticus Finch Foe]

The line of credit was a line item on the closing audit statement of the reverse mortgage. There was only one loan and one mortgage that covered that loan. I would think that obligates either set of heirs as an encumbrance to the inherited property. A couple made the decision to consume their equity in their home for living expenses going forward either together or singly if one should die before the other - (the loan agreement does not change with the death of one borrower). Think of it this way; if they had borrowed the entire equity and put a sum equal to the LOC into a joint account with POD or survivor, the surviving spouse would have total access to that cash as it would not have been included in the deceased spouses estate and that spouses heirs would inherit the property subject to the entire mortgage including the amount held in cash. In essence that is what the line of credit was (in a joint account with survivor-ship).

 

[Atticus Finch Foe]

I get that. However, she basically used the remainman's equity to pay for her living expenses, and her estate now wants the remainderman to eat the balance of the reverse mortgage, instead of it coming from her estate. She spent the money and her estate wants the remainderman to pay it back. That may be legal in a life estate situation, I don't know one way or another, but its certainly not just.

I get that. However, she basically used the remainman's equity to pay for her living expenses, and her estate now wants the remainderman to eat the balance of the reverse mortgage, instead of it coming from her estate. She spent the money and her estate wants the remainderman to pay it back. That may be legal in a life estate situation, I don't know one way or another, but its certainly not just.

You may think on the surface that it is "not just". However, there may be many other circumstances at play that are not understood which may change what is considered "Just".

 

[PayrollHRGuy]

I get that. However, she basically used the remainman's equity to pay for her living expenses, and her estate now wants the remainderman to eat the balance of the reverse mortgage, instead of it coming from her estate. She spent the money and her estate wants the remainderman to pay it back. That may be legal in a life estate situation, I don't know one way or another, but its certainly not just.

Think of it this way. Had they not gotten a LOC and instead taken a lump sum when they did the reverse mortgage the money would have been sitting in a bank account that would have likely gone 100% to the spouse.

 

[LdiJ]

Think of it this way. Had they not gotten a LOC and instead taken a lump sum when they did the reverse mortgage the money would have been sitting in a bank account that would have likely gone 100% to the spouse.

That is true, and in that case I agree. However, she continued to further take equity after her husband died. I would not personally have done that. I would have considered it as stealing from his heirs.