Stop Foreclosure With A Reverse Mortgage

If you are currently behind in payments, or the foreclosure process has been started on your home, you could still qualify for a reverse mortgage.

Risks of Foreclosure During Retirement

AARP did a study, which they released in 2012, that found that 1.5 million homeowners 50 and older lost their homes from 2007 to 2011. The study also finds that people age 75 and older have a higher foreclosure rate (3.2%) than those ages 50 to 64 (3%) or age 65 to 74 (2.6%).[1]

While delinquency and foreclosure rates have decreased since 2012, foreclosure among older homeowners is still a significant problem. Among other things, older consumers have greater difficulty recovering from foreclosure than their younger counterparts due to their increased incidences of health problems, cognitive impairment, and difficulties returning to the workforce. [2]

What You Need To Know About Using A Reverse Mortgage As A Foreclosure Bail Out

Part of the process of qualifying for a reverse mortgage is the Financial Assessment. The assessment looks at your pay history of debt, such as credit cards, car payments and mortgage for the last 2 years. It also looks at your pay history for taxes, homeowner’s and flood insurance and HOA dues for the last 2 years. Credit scores are not looked at, and are not part of qualifying or underwriting process.



If your pay history is unacceptable, you may be required to set up a lifetime set aside, or LESA. Remember, this is an escrow account that is set up to pay your taxes, homeowner’s insurance, flood insurance (if applicable) for the number of years you are expected to live.

The LESA is set up by setting aside a portion of your home’s equity to make the payments for you. As payments for taxes or insurance come due, a portion of your equity is used to make those payments on your behalf. Every time a payment is made towards taxes, insurance or HOA, your loan balance increases.

Any of the equity that was set aside and not used to pay for taxes and insurance is still yours should you decide to sell your home at some time in the future, assuming your loan balance does not exceed the value of the home. The same is true if you passed away and heirs inherited the home. If they sold or refinanced the home they would receive the equity, assuming the loan balance did not exceed the value of the home.

The good news is that you may not be required to utilize the LESA if there are extenuating circumstances that caused you to get behind on payments. Extenuating circumstances could include medical problems, loss of income, loss of a spouse or a variety of other things that were beyond your control that caused the situation.

You are going to have to document everything to back up your explanation as to why you are currently in the situation you are in. This documentation may include medical records, death certificates, divorce papers and any other documentation that you can provide.



Ultimately it is up to the underwriter to determine whether there were extenuating circumstances. Therefore, it is critical to provide as much proof as possible that substantiates everything in your letter of explanation.

If you are in foreclosure, time is of the essence. Every month you delay it only tacks on more fees, interest and penalties on your loan balance. It is also one more month closer to the actual sale date.

There is lots of free help for people in foreclosure or close to getting foreclosed on such as Homeownership.org, USA.gov and FDIC.gov.



Finally, you need to seriously address whether the reverse mortgage is the right option given your current situation. As much as you may want to stay in the home, you must be pragmatic about the situation and use logic, not your emotions.

[1] http://www.aarp.org/about-aarp/press-center/info-07-2012/AARP-Study-Foreclosure-Report.html

[2] http://www.consumerfinance.gov/about-us/newsroom/cfpb-spotlights-mortgage-debt-challenges-faced-by-older-americans/