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The Spokesman-Review Newspaper
Spokane, Washington  Est. May 19, 1883

Tom Kelly: Let’s keep seniors from falling through the cracks

Sometimes, the best-laid plans …

A reverse mortgage historically has enabled senior homeowners to convert part of the equity in their homes into tax-free income without having to sell the home, give up title, or take on a new monthly mortgage payment. Reverse mortgages are available to individuals 62 or older who own their home.

Funds obtained from the reverse mortgage are tax-free. The proceeds can be received in a lump sum, regular monthly payments, a line of credit or in a combination of those options. Interest is charged on the amount drawn, adding to the original amount. When the house is sold, or the last remaining borrower dies or moves out of the home, the loan amount plus the accrued interest is repaid. The borrower makes no monthly payments and cannot owe more than the value of the home.

We have a friend – let’s call her Sally – who gathered all the reverse mortgage information she could find for her mother, now age 97. Sally even attended the mandatory reverse mortgage counseling session in her mom’s behalf.

After two setbacks because of reverse mortgage program restrictions, Sally is still trying to find a way to tap the equity in the Kitsap County condominium that Sally’s mom owns free and clear.

Here’s what happened. Sally’s mom owns a home in a small development with 17 condominiums comprised of three different owners’ associations. That’s because the original builder put the buildings up in phases. Sally’s mom owns one of five units in the second phase.

According to the Department of Housing and Urban Development, at least 51 percent of the units in a condo association must be owner-occupied in order for any unit to qualify for a FHA-insured Home Equity Conversion Mortgage.

It turned out that only two of the five units were owner occupied, so Sally’s mom’s home did not qualify for the HECM.

“I had the idea that maybe I could get the three separate associations to merge into one,” Sally said. “This would eliminate the 51 percent owner occupancy problem. Unfortunately, it uncovered another restriction.”

Sally discovered that no owner could qualify for a HECM if any individual or entity owned more than 10 percent of the total number of units in the association. Given that one man owned two of the 17 condos, Sally and her mom were rejected again on the “10 percent rule.”

According to reverse mortgage specialists, the only exception to the 10 percent rule is if the two units were owned by the original developer and never sold. That is not the case here.

HUD may soon be issuing guidelines relaxing some requirements specifically for smaller condo projects. However, there has been no specific definition for “smaller.”

The Federal Housing Administration’s HECM is the most popular reverse mortgage available. AARP reported that about 93 percent of applicants were satisfied with the process.

But some people – even those who desperately need the funds and whose homes are owned free and clear – have been unable to go through the process and have fallen between the cracks.

“My mom has about six months of resources left, unless we can tap the equity in her home,” Sally said. “She really wants to stay in her home and is of sound mind and body.”

What’s the next step?

“I have also considered trying to find someone who would be interested in buying her place as an investment and then renting it back to her, something like that …”

It would be easier if HUD could find a way to grant exceptions to seniors who simply want to age in place – especially those in their 80s and 90s who have no liens against their properties. After all, building departments seem to issue “variances” to some marginal developments. Why not a logical ruling for a person who has built her own nest egg?