Four months after the destructive Palisades and Eaton Fires in Los Angeles, fire victims are now navigating how to recover and rebuild. Fewer available financial resources and options for seniors who have taken out reverse mortgages on their homes can make the rebuilding process more difficult.
What is a Reverse Mortgage?
Reverse mortgages are loans that allow seniors to take equity out of their homes to help pay for living expenses or other costs. The borrower does not make monthly payments, but as the equity in their home decreases, the loan increases.
The loan becomes due when the borrower dies, moves, outlives the agreement or fails to pay the property taxes and home insurance. If borrowers are not able to meet these requirements, the loan becomes delinquent and can go into foreclosure. One out of every 10 reverse mortgages is in default and could face foreclosure.
Reverse mortgages are available for homeowning seniors 62 years of age or older, and are almost always issued by the Federal Housing Administration (FHA).
Historically, these loans were used as a last resort for seniors who had depleted all other resources, but as the cost of living and medical coverage increases, more seniors are taking out reverse mortgages at an earlier age. The earlier a borrower takes out a reverse mortgage, the greater the risk, as they can outlive their loan agreement or deplete their home equity without other financial options.
Important Information for Fire Victims with Reverse Mortgages
Although you may have lost your home or are temporarily displaced, you are still required to comply with the terms of your reverse mortgage loan, including continuing to pay taxes and insurance on your home. A failure to do so can lead to the default on the loan and foreclosure on the remaining structure or land.
You may qualify for temporary tax relief, which would delay any payments. To do this, file a Misfortune or Calamity Claim with the LA County Assessor’s office.
You can still certify your destroyed or damaged home as your primary residence. To continue your reverse mortgage, you are required to certify once a year that your home is your primary residence. HUD considers a borrower displaced temporarily due to a disaster to still be maintaining their home as their principal residence as long as they lived there when the disaster struck and plan to return once it’s habitable. That means as long as you have plans to rebuild, you can certify the property as your primary residence.
To rebuild, you will need to present a plan to your mortgage company showing that it is a viable option. This is a long process with a lot to consider – weigh all your options before making a decision. Support is available from community groups, disaster case managers and HUD-certified financial counselors.
Under California law, you have the right to rebuild or buy a replacement home with your insurance proceeds. The nonprofit United Policyholders provides guides and information on how to get your mortgage company to release insurance proceeds. If you decide not to rebuild, you will be responsible for paying off your mortgage.
Your mortgage company is typically co-insured on your insurance policy. Your rights are outlined in the terms of your loan agreement, so read the Deed of Trust and other loan documents carefully to determine your rights.
Insurance payouts are a negotiation like purchasing a car – the first offer may not be your best. Until you receive a firm “no” in writing, you are still able to negotiate with the insurance company. Borrowers also generally have the right for the insurance proceeds to be held in an interest-bearing account (at least 2%) during the rebuilding process.
There is a foreclosure moratorium until July 7 for all HUD-backed reverse mortgages in the LA County disaster area. If you are fearful of a foreclosure, don’t wait to contact a financial advisor or county resources for assistance. You have more options now than if you wait.
Resources for Reverse Mortgages
U.S. Department of Housing and Urban Development (HUD)
www.hud.gov/findacounselor
United Policyholders
www.uphelp.org
National Reverse Mortgage Lenders Association (NRMLA)
www.nrmlaonline.org
www.reversemortgage.org
Bet Tzedek Legal Services
www.bettzedek.org
(323) 989-0506
Foreclosure Prevention
www.dcba.lacounty.gov/forclosure-prevention
fphelp@dcba.lacounty.gov
(800) 593-8222
Resources for Renters
Rent Stabilization
www.dcba.lacounty.gov/rentstabilization
rent@dcbaa.lacounty.gov
(800) 593-8222
Stay Housed LA & Tenant Rights to Counsel
www.dcba.lacounty.gov/trtc
www.stayhousedla.org/get-legal-help
(888) 694-0040
