Two prominent lawmakers are trying to protect the rights of heirs who inherit homes from their parents.
In a letter to Shaun Donovan, the secretary of the Department of Housing and Urban Development, Senator Charles Schumer and Senator Barbara Boxer urged the agency to clarify the rules around reverse mortgages, a type of loan that has increasingly saddled middle-age children with the mortgages of their parents.
Referencing an article from March in The New York Times, the senators said they were disturbed to read that “an increasing number of heirs are facing foreclosure on their homes after receiving inaccurate and confusing information on their options following a reverse mortgage borrower’s death.â€
Reverse mortgages allow borrowers age 62 and older to borrow against the future value of their home, and do not need to be paid back until the borrower moves or dies. When the latter happens, heirs are entitled to 30 days to decide what they want to do with the property, and have up to six months to put financing in place. They are also entitled to satisfy reverse mortgages by paying 95 percent of the value of the home when the loan becomes due.
That discount is especially important now, given that many homes dropped in value after the financial crisis.
For many elderly borrowers, reverse mortgages offer a way to stay in the homes they spend years working to afford. But a growing list of middle-aged children are now discovering that what once appeared to be a saving grace has saddled them with unexpected debt.
Many reverse mortgage lenders have complicated the issue by aggressively pushing to foreclose on a home unless the mortgages are paid in full, and homeowners are not always aware of their rights.
Ms. Boxer and Mr. Schumer are asking HUD to clarify those rights after the agency issued what the senators deemed to be a confusing letter on the topic in 2008. The letter could be interpreted as limiting a lender’s ability to collect less than 100 percent of a mortgage balance.
A representative from the housing department could not be reached for comment.
