Please be advised that we have gone live with a NEW and IMPROVED blog for Gosselin & Associates, P.C. Our new blog can be found here: http://blog.lawforlife.com/. As of today (August 6, 2007) we will no loger be posting to this blog. I apoligize for the incovenience but highly recommend saving our new blog to your 'Favorites' and continuing as a loyal reader. If you have any questions, please feel free to e-mail me at mbrickley@gosselinlaw.com, or contacting me via phone at (781) 729-0313. Thank you, Melissa Brickley Director of Client Services Gosselin & Associates, P.C.
Estate Planning for Mere Mortals - Become a Super Hero for Your Family
Estate planning is for old people in hospice, right? Don't estate planning lawyers hang around nursing homes looking for dying people who need wills? I'm young, healthy and make big money - what do I need with planning for incapcity, I'll do that when I'm old. What does it take for an otherwise intelligent, caring and responsible person to call an estate planning lawyer to get a will drafted and their affairs in order? Well, I just came back from my Summer vacation (in Alaska and Seattle) using the disgrace that is our national air travel system. Despite my conscious person knowing that the cab ride to the airport was many times more dangerous than the metal tube hurtling through the air at 600 miles an hour, I knew somewhere within me that at any time I could become dust. As a rule I travel with my immediate family all together, yet I know others that always separate their children and spouses on the theory that 'at least one of us will survive.' Statistically I don't know if they're better off or not. In the months after 9/11 I saw a huge influx of new estate planning clients, many of whom never had done any estate planning of any kind. These were people in their 50's and 60's who had never had a will let alone an asset protection or liability protection plan in place for their families or their businesses. They had just been too busy to get their affairs in order apparently. It took the realization that they could have been on those planes or they could have been at Windows on the World having a coffee and Danish. From discussions with colleagues in New York City many new high net worth estate planning clients came in who admitted that previously they thought themselves invincible, immortal or just plain luckier than those poor slobs that become incapacitated at a young age or die leaving their families in dire straits. Couldn't happen to them. Every day we see disasters, car accidents, epidemics, crimes that destroy lives and cause untold distress to whole families. I am proud to provide at least some measure of peace of mind to those that seek protection, or at least preparation, for the worst that this world has to offer. You would think that with the unending flow of misery leading our headlines that estate planning lawyers would be beating off the business with a stick - but rather, in my experience, people cower and convince themselves that it is always someone else therefore they need not take responsibility for their own situations. I have filing cabinets full of this flawed reasoning, and the files are labelled with such terms as probate, guardianship, bankruptcy, litigation. Do yourself a favor and get some estate planning done. It need not be expensive. It need not take a lot of your precious time. And it doesn't make you look weak - on the contrary it shows that you are strong enough to acknowledge your own mortality, which as you've seen before in this blog is really one of the few things that distinguishes humans from all other life forms on Earth. And yes, the cobbler's kids have shoes.
All Hail Reverse Mortgages! Alia Acta Est!
Who invented the Reverse Mortgage? Of course most lenders in the reverse mortgage space like Financial Freedom, Seattle Mortgage, Bank of New York, Wells Fargo, Countrywide, et al. would contend that they in fact have innovated the reverse mortgage. Nope. Go back a little further in time. Keep going. Still more. Stop right there, about 500BC, yes BC as in Fred Flintstone. You see reverse mortgages have effecitvely been around since Roman times in the form of usufruct. There is nothing new under the sun.
From Wikipedia:
Usufruct is the legal right to use and derive profit or benefit from property that belongs to another person, as long as the property is not damaged. In many legal systems of property, buyers of property may only purchase the usufruct of the property. Usufruct originates from civil law, where it is a real right of limited duration on the property of another. The holder of a usufruct, known as the usufructuary, has the right to use and enjoy the property, as well as the right to receive profits from the fruits of the property. The Latin words usus and fructus refer to the rights of use and fruit, respectively, and the English word usufruct derives from these Latin roots.
In Roman Law, usufruct was a type of servitude or ius in re aliena, a right in another's property. The usufructuary never had possession of this property (on the basis that if he possessed at all, he did so through the owner), but he did have an in rem right to the property itself. Unlike the owner, he did not have the right of alienation (abusus), but he could sell or let his enjoyment of the usufruct. Despite the usufructuary's lack of possession a modified form of the possessory interdicts was available to him. The term fruits should be understood to mean any replenishable commodity on the property, including (among others) actual fruits, livestock and even rental payments derived from the property. These may be divided into civil and natural fruits, the latter of which, in Roman law, included slaves and livestock.
As we know reverse mortgages today, their form has only taken shape over the past couple of decades. Here is an article that I have been working on as part of my new book on reverse mortgage issues:
Reverse Mortgages: Helping Seniors Improve Their Quality of Life or the Road to Financial Ruin?
I. INTRODUCTION
The phrase “demographic demand” refers to the idea that a person’s goals in obtaining credit may be influenced by age[1]. The borrowing patterns of young people provide the most familiar example of this phenomenon. In general, young people have not had the opportunity to accumulate savings, but they have a high potential to earn income on an increasing scale. They most often seek out credit to enable them to purchase major items of property, such as cars, furniture, appliances, and houses. Lenders extend them credit on the strength of their ability to earn income. It is widely known that the fastest growing demographic group is not young people, it is senior citizens.[2] When senior citizens apply for loans their goals are often the mirror image of those of younger people. Many senior citizens own major assets. They often own real estate outright, unencumbered by a mortgage. And they have often seen the value of their real estate rise considerably since it was purchased. Due to retirement, though, senior citizens’ incomes are diminished.[3] Lenders have noticed these differing needs of borrowers based on age. They have begun to develop loan products to cater to the needs of older people. One of the product lenders have developed to meet this need is known as the “reverse mortgage.”[4] It is not difficult to trace the source of bad impressions and mistrust that predominate conversations about reverse mortgages. The practice of “Equity Sharing,” the predecessor of reverse mortgages is the source of much of the confusion about how reverse mortgages really work. In the stereotypical equity sharing arrangement, individuals would approach cash-strapped seniors and offer to make lump-sum or over time payments to them in exchange for having the senior sign a deed, naming the “benefactor” as joint owner.[5] In scam awareness materials, senior advocates refer to this practice as “deed theft.”[6] Early in the reverse mortgage chronology, lending institutions perpetuated this reputation by inserting provisions into their reverse mortgage documentation that allowed them to claim all of the appreciation of the home on which they had issued a reverse mortgage. One such story occurred in Brigantine, N.J. “In 1988, Katherine and Harold Stephens, signed up for a reverse mortgage that guaranteed to pay them $312 a month for as long as they resided in their house near Atlantic City. At the time Katharine was 76 and Harold was 78. Harold later died, leaving Katharine living alone in the property. Like other reverse mortgages, the money sent by the lender each month represented a gradually growing debt that would have to be repaid when the owners sold the home or moved to a different residence or health care facility. The loan carried an annual interest rate of 11.5 percent, but it also had another problem. Buried in the contract block print was an equity provision. Besides the regular interest rate on outstanding balances, the lender received the right to 100 percent of all equity appreciation on the house from the day of settlement to the date of final sale or move out.”[7] Stories like this have prompted states and the Federal Government to step in and regulate the reverse mortgage industry.[8]
II. Chronological History of Reverse Mortgages[9]
The first Reverse Mortgage was issued in 1961, by Nelson Haynes of Deering Savings and Loan in Portland, Maine to Nellie Young, the widow of his high school football coach. In the 1970’s various educational institutions were writing technical documents on this new breed of lending product. In 1975, Jack Guttentag of University of Pennsylvania’s graduate school, The Wharton School drafted “Creating New Financial Instruments for the Aged.” Ohio took the lead on reverse mortgages in 1977, creating the first Reverse Mortgage Loan Program, “Equi-Pay.” The following year, Wisconsin’s Bureau on Aging funded the “Reverse Mortgage Study Project” and the Wisconsin Department of Local Affairs and Development offered the first statewide deferred loan payment program. The first national “Reverse Mortgage Development Conference” was held in Madison, Wisconsin in 1979. Reverse mortgage education and development began to move across the country shortly after that, with San Francisco creating a Reverse Annuity Mortgage program and studies being completed in Cambridge, Massachusetts on “Unlocking Home Equity for the Elderly.” National attention began to focus on this movement with a two-year “Home Equity Conversion Project” funded by the U. S. Administration on Aging and the endorsement of an FHA reverse mortgage insurance proposal in 1981 by the White House Conference on Aging. Throughout the 1980’s, reverse mortgage, or Home Equity Conversion (HEC) programs gained national exposure via multiple publications, conferences, and media coverage in Newsweek, Time, U.S. News, and Good Morning America. The U.S. Administration on Aging funded research on federal issues around HEC programs and the U.S. Senate Special Committee on Aging staged the first hearings on reverse mortgages and subsequently issued a report citing the need for reverse mortgages in 1982. This national exposure continued with an FHA reverse mortgage insurance demonstration program being proposed by the U. S. Department of Housing and Urban Development. In 1984, the first open-ended risk-pooling reverse mortgage was offered and in 1985, HUD sponsored its first national conference on home equity conversion. In 1986, AARP established the “Home Equity Information Center” to provide retired seniors with information on this rapidly expanding home mortgage option. In 1987 studies on home equity financing of long-term care were completed in Minnesota and Connecticut and the U. S. House Ways and Means Committee heard testimony on HEC and long-term care. In 1988, President Reagan signed FHA reverse mortgage insurance legislation and HUD created an HEC development team. 1989 saw the first line-of-credit reverse mortgage developed by the VA Housing Development Authority, followed by an announcement by Fannie Mae that it intended to purchase reverse mortgages insured by the FHA. That year, HUD selected fifty lenders by lottery to make the first FHA-insured reverse mortgages and released its “Home Equity Conversion Mortgage program handbook (#4235.1). Recognizing the need to educate counselors to assist the ever-growing senior population, multiple training sessions were conducted by both the AARP and HUD. Congress increased the FHA insurance authority to twenty-five thousand reverse mortgage loans by September 31, 1995 and the AARP published a “Model State Law on Reverse Mortgages. “Retirement Income on the House: Cashing In On Your Home with a Reverse Mortgage” was named the best book of 1992 on financial services for the elderly. By the end of 1993, the HECM program was in all states except AK, SD, and TX. In 1993, Congress enacted and the Federal Reserve published “Total Loan Cost Rate (TALC)” disclosure regulations for all reverse mortgages. Throughout the 1990’s, AARP and HUD sponsored and funded education for consumers, financial planners, elder law attorneys and community counselors, creating a reverse mortgage counselor exam by 1999 which was co-sponsored by Fannie Mae and National Reverse Mortgage Loan Association (NRMLA). Ever on the watch for abuses, Fannie Mae announced new consumer protections in 1999 and AARP and NRMLA supported absolute limits on origination fees. In 2000, the first national, reverse mortgage counseling exam was taken by four hundred twenty-five counselors in forty-three states. [10] The new millennium has seen publications by HUD, HECM, and AARP as well as a multitude of on-line resources for senior consumers and their families.[11]
III. How a Reverse Mortgage Works[12]
Under a reverse mortgage, the real estate to be mortgaged has already been purchased and any financial charges on title to it have been discharged. The borrower is not expected to make periodic payments, or any payments, until the loan comes due. For the lender, the value of the mortgaged property is paramount; for the borrower, the loan is obtained to supplement income or to enable purchases of assets other than the mortgaged property. Eligibility limits on reverse mortgages are much less stringent that traditional forward mortgages. Outside of homeownership, the borrower must be at least sixty-two years of age. Given the importance of the value of the reverse mortgage borrower’s property, reverse mortgage lenders require that potential borrowers obtain an appraisal of their property. The potential borrower must pay for this appraisal. The cost of the appraisal should be borne in mind by borrowers; it will form a non-interest charge that should be factored into determining the overall cost of borrowing under a reverse mortgage. Some reverse mortgage lenders require borrowers to retain independent legal representation for the reverse mortgage transaction. Others require borrowers to provide a certificate of independent legal advice as one of the closing documents for the loan. Reverse mortgage lenders insist on having the first mortgage on title to the borrower’s property. If the borrower’s title is encumbered by other financial charges, then the borrower will be obliged to use part of the reverse mortgage proceeds, or other funds, to pay out and discharge these other charges.
Amount of the Loan
Lenders determine the principal amount of the loan by reference to the value of the house and the age of the borrower or borrowers. Older borrowers are usually entitled to a larger loan. Reverse mortgages have a lower initial loan-to-value ratio than conventional mortgages. The principal advanced tends to fall in a range between 10 percent to 40 percent of the value of the mortgaged property. Of course, as interest accrues over time, this ratio will become higher. Interest The interest component of reverse mortgages is usually pegged to an external rate. For example, one lender charges interest at a rate of 4.75 percent above the Libor Index, as it is set by the index from time to time. The lender “resets” its interest rate each year to account for variations in the underlying Libor rate. This method of calculating variable interest is not unique to reverse mortgages. A key feature of reverse mortgages that may escape some borrowers is that reverse mortgages are rising debt loans. Since borrowers are not making periodic payments they are not reducing the amount of interest accruing on the loan. As that interest is regularly compounded (usually semi-annually), the amount outstanding under the loan can grow to be quite large, as the borrower ends up paying interest on the accumulating interest.
Term of Loan and Repayment
Most reverse mortgage loans are not made for a set term of years. Instead, the reverse mortgage becomes fully due and payable on the occurrence of a specified event. That event is typically the earliest to occur of: (1) A certain amount of days (for example, 120 days) after the date of the borrower’s death. (If there is more than one borrower, then this period begins to run after the date the last borrower dies.) (2) The date on which ownership of the mortgaged property is transferred to another person. (A transfer can be a sale of the property, or another transaction, such as a gift, that vests ownership in someone other than the borrower.) (3) The date on which the mortgaged property ceases to be the borrower’s principal residence. (Since it is often not a simple task to determine when a person’s principal residence changes, the reverse mortgage usually sets out a formula—such as three months continuous absence from the property—in order to determine when this event has occurred.)
Default
Reverse mortgage lenders tend to look only to the mortgaged property for repayment. Many reverse mortgages limit the recourse that lenders have against borrowers personally. If the agreement provides for this, even if the amount of principal and interest outstanding at the time the reverse mortgage comes due exceeds the value of the mortgaged property, the reverse mortgage lender is not permitted to sue the borrowers personally for the balance. This nonrecourse feature of reverse mortgages effectively caps the amount that borrowers will be required to repay at the value of the mortgaged property. Reverse mortgages, like mortgages generally, operate to secure repayment of a loan and performance of obligations by giving the lender enhanced rights if the borrower defaults. As is the case under a conventional mortgage, a default under a reverse mortgage leaves a borrower open to having his or her interest in the mortgaged property foreclosed. Reverse mortgages differ from conventional mortgages with respect to defaults in two main ways. First, the most common mortgage default is failure to make a periodic payment. Since reverse mortgage borrowers are not required to make periodic payments, as a practical matter they are less likely to default. This does not mean that defaults under a reverse mortgage are impossible. A borrower could fail to repay the loan when it comes due. In addition, a borrower who fails to make a property tax payment or a payment under a subordinate financial charge will, in all likelihood, find that such a failure constitutes a default under the reverse mortgage. Second, as noted above, reverse mortgages tend to be nonrecourse loans. In a true nonrecourse loan, the borrower has no personal liability to repay the loan or interest on it, and the lender’s remedies are confined to foreclosure or sale of the mortgaged property. Some reverse mortgage lenders operate on a true nonrecourse basis, and the mortgage limits their remedies for default to foreclosure. Other lenders provide that, while the original loan and interest on it are nonrecourse, the borrower will be personally liable for other types of charges. In addition, some reverse mortgages attempt to allow for changes in the value of real estate over time within a cap on the personal liability of a borrower. These lenders limit the borrower’s personal liability to the value of the mortgaged property at the time the reverse mortgage comes due, at the time it is sold, or at the time the reverse mortgage is actually paid, whichever is greatest. Since this conception of “value” could exceed the amount received from a sale of the mortgaged property, there is a possibility that a defaulting borrower could have to make up the difference personally.[13]
IV. Statutory and Federal Regulations
The increasing popularity of reverse mortgages has state and federal agencies working diligently to keep reverse mortgages regulated. As is normally the case in lending, predators and abuses are plentiful, and seniors are among the nation’s most vulnerable population.[14] State and Federal agencies offer consumer education and advocacy programs to help seniors protect themselves against reverse mortgage abuses.[15] Most reverse mortgage literature explains that they are complex transactions requiring the assistance of a lawyer. All reverse mortgages require that the senior participate in counseling to assess whether an HECM is the right vehicle for the senior. One such piece of protective legislation is the Consumer Credit Protection Act, which mandates that lenders disclose credit terms so that consumers can fairly and accurately assess whether a particular credit situation is right for them.[16] The Truth in Lending Act was created in 1968 to provide consumers with an avenue to cancel a transaction without penalty upon determination that terms and costs were not adequately disclosed by the lending institution.[17] In 1975, The Federal Home Mortgage Disclosure Act was created in response to lending institutions contributing to the decline of certain geographic areas by their failure to provide adequate home financing to qualified applicants on reasonable terms and conditions. The Act was designed to provide the citizens and public officials of the United States with sufficient information to enable them to determine whether lending institutions were meeting their communities’ needs and to help public officials in their determination of the distribution of public sector investments in a manner designed to improve the private investment environment.[18] The Fair and Accurate Credit Transactions Act was originally created in 2003, and was amended in 2004 to add identity theft prevention, improve resolution of consumer disputes, improve the accuracy of consumer records, and to make improvements in the use of, and consumer access to, credit information.[19] Advances in state and federal oversight and regulation of reverse mortgages are ongoing, with the House passing (415-7) the Expanding American Homeownership Act (H.R. 5121) that made substantial improvements to the FHA Home Equity Conversion Mortgage (HECM), the nation’s most popular reverse mortgage program on July 25, 2006. A Senate version, S.3535, is also under consideration.[20] On a state-by-state basis, reverse mortgage legislation has been enacted throughout the U.S. Massachusetts passed its legislation in 1998 to define reverse mortgages and provide protections for the Commonwealth’s senior population.[21] Consumer Protections for Reverse Mortgagors There are many protections in place for people who decide to take out a reverse mortgage. Federal Truth-in-Lending law requires that reverse mortgage lenders disclose the projected average annual cost of the loan. Borrowers can cancel the loan for any reason within three business days after closing. They must notify the lender in writing to terminate the reverse mortgage. Most lenders charge interest for a reverse mortgage at an adjustable rate on the loan balance. To protect borrowers, all reverse mortgage have limits on the rate at which interest costs for the loan can change within a year, as well as over the life of the loan. Changing interest rates do not affect the monthly payments that a borrower receives. The costs that reverse mortgage borrowers pay are similar to those of a traditional home loan or to refinance an existing mortgage. These include an origination fee, appraisal fee, and third party closing costs (fees for services such as an appraisal, title search and insurance, surveys, inspections, recording fees, etc.). Most of these up front costs are regulated, and there are limits on the total fees that can be charged for a reverse mortgage. Since most of these costs can be financed as part of the loan, borrowers typically face few out-of-pocket costs for a reverse mortgage (typically the appraisal fee and credit check to make sure that the borrower is not delinquent on any other federally insured loans). All reverse mortgages are non-recourse loans, which mean that the borrower or heirs never owe more that the value of the home at the time of sale or repayment of the loan. This important feature is especially critical to surviving spouses who might otherwise be impoverished due to the cost of the loan. To receive this protection, HECM borrowers pay a mortgage insurance premium. Mortgage insurance offers additional security to both borrowers and lenders. Borrowers are protected against default by lenders. Lenders avoid losses that arise when the HECM loan balance exceeds the value of the home at the time of sale (“crossover risk”.) FHA insures reverse mortgages issued under the HECM program. Borrowers who apply for any reverse mortgage must first receive independent counseling before they complete the loan application. This helps ensure that borrowers understand the advantages and limitations of this type of loan, and are aware of possible alternatives to reverse mortgages. Counselors must work for a HUD-approved agency and receive special training on reverse mortgages. Currently, there are about 800 approved HECM counseling agencies who offer information and assistance to seniors over the phone or in person. The AARP Foundation has developed a national certification program for reverse mortgage counselors.[22]
V. REVERSE MORTGAGE MYTHS & SCAMS
Despite increased popularity, even some of the most basic facts about reverse mortgages are often misunderstood. According to Peter Bell, the president of the National Reverse Mortgage Lenders Association, a relatively short industry history and rapid product evolution have deluged consumers with information that at times is confusing or inaccurate.[23] “The most common misconception we hear is, ‘A reverse mortgage is where the bank gives you some money and then takes your house,’” says Bell. “That couldn’t be further from the truth. Our mission,” Bell explains, “is to inform seniors about the benefits of reverse mortgages so that they can make empowered decisions about whether this product makes sense for their own particular situation. A reverse mortgage helps people to address their retirement needs.” The organizations website lists the most common questions asked by consumers about reverse mortgages, with the answers.[24] The questions are broken into three groups: those appropriate to ask before getting a reverse mortgage; those applicable during a reverse mortgage; and those applicable at the end of a reverse mortgage. This is the third guide published by NRMLA. The previous two are The NRMLA Consumer Guide to Reverse Mortgages, and Using Reverse Mortgages for Health Care: A NRMLA Guide for Consumers.[25] The organization produces a detailed list of reverse mortgage products now available and a state-by-state list of reverse mortgage lenders who are members of NRMLA.[26]
The Mortgage Calculator Scam[27]
Using an online calculator to get a cash-out estimate for a Reverse Mortgage is actually a very simple process. Most Reverse Mortgage calculators only require that you input the current value of your home, the balance of your existing mortgage, and the ages of the borrowers. You will then be provided with a reasonably accurate estimate of the money you can receive. Many unscrupulous lenders are plugging in inaccurate interest rates in their online calculators causing inflated cash-out figures. Remember that the interest rate is the same no matter which lender a senior chooses. The advice is that seniors not shop for a lender based on the results of their online calculator. The Department of Urban Development actually dictates what interest rate all properly licensed Reverse Mortgage lenders must use, so the results should be virtually identical from all lenders.[28]
Lenders MUST be Approved by the Government
All Reverse Mortgage lenders must be approved by the Department of Housing and Urban Development. Reports have been filed about companies claiming to have HUD approvals originating Reverse Mortgages and attempting to charge rates and fees in excess of those mandated by HUD. The HUD website contains a detailed list of approved lenders, to verify that a Reverse Mortgage lender is truly authorized to originate Reverse Mortgages.[29]
The "Shared Appreciation" Scam[30]
The federally insured Home Equity Conversion Mortgage (HECM) does not have an equity sharing or shared-appreciation feature. Any increase in equity belongs to the homeowner and/or their heirs. Current advice is for seniors to stay away from anyone offering the senior the “opportunity” to obtain more money in exchange for giving up a percentage of the future value of the home.[31]
V. Public Policy
The dramatically increasing numbers of seniors who may need financial support in excess of social security and other government programs require consideration of programs like reverse mortgages to support seniors. Indeed, data from HUD show that reverse mortgage use has increased substantially. Omitted* Statistics are through June 2006.[32] High levels of housing wealth among today’s seniors are a direct consequence of government policy to offer guaranteed home loans through the GI Bill and tax laws that allow mortgage interest deductions. Widespread availability of the thirty-year mortgage has also altered consumer attitudes toward debt. Even older Americans are now willing to refinance their homes and assume such lengthy mortgages. Having encouraged older Americans to accumulate over $2 trillion in housing wealth, is there now a need to create public policy that will encourage older homeowners to voluntarily tap home equity to pay for long-term care?[33] Promoting greater use of reverse mortgages for long-term care can be done incrementally, or as part of a larger effort to encourage seniors with resources to share more of the cost of Medicaid services. States could begin to encourage the use of reverse mortgages by addressing government regulations, along with program requirements and restrictions, that may present obstacles for impaired elders to “use their home to stay at home.” Eliminating such regulatory and eligibility barriers could unlock additional housing wealth by making the use of home equity more attractive to impaired, older homeowners.[34] Using a Reverse Mortgage to Stay at Home and Pay forLong-Term Care Surveys have found that many Americans are inadequately prepared for long-term care needs. One of the most prevalent perceptions among Americans is that they will never need long-term care. Although, a recent survey found that sixty-one percent of people ages forty to seventy believe that their chances of needing long-term care are greater than being in an auto accident, most people remain unaware of the challenges of meeting this need.[35] Over half of senior respondents (fifty-nine percent) to a recent National Council on Aging survey, believe that they are likely to extremely likely to stay in their own home once they need help with everyday activities. Despite this optimism, many senior respondents (forty-three percent) had not made any financial plans to cover the cost of help they would need to stay at home. Responses offered as “financial planning” ranged from insurance to government assistance to help from family members. About one-quarter (twenty-seven percent) of adult children did not know if their parents had made financial plans for long-term care.[36] Reverse mortgages can provide a substantial amount of additional funds for a broad range of older homeowners. However, most elders are likely to be reluctant to tap home equity until they need assistance. In a recent National Council of Aging study, of the 13.2 million candidate households, about 9.8 million (74 percent) are dealing with some level of impairment that affects their ability to live at home (Table 3.3). Of these, 1.75 million (13 percent) contain one or more elders who have an immediate need for long-term care. These elders need assistance to perform one or more ADLs or IADLs. Among these households, almost one million are on Medicaid or at financial risk for needing government assistance to pay for long-term care. An additional 1.96 million households (15 percent) would likely require assistance in the near future because they only have difficulty with ADLs or IADLs. Nearly half of candidate households (6.1 million) are coping with functional limitations. These homeowners are an important target population for reverse mortgages because they are not well served by traditional sources of long-term care financing that target elders with a high level of impairment. Only the sickest seniors may be eligible to receive services through the Medicaid program.[37] For example, beneficiaries receiving services under a Medicaid Home and Community Based Services Waiver (1915c) must be so severely impaired that they would otherwise require nursing home care before they can qualify for help at home. Similarly, long-term care insurance policyholders typically must need help with two or more ADLs to trigger their home care benefits. This makes it difficult for elders with limited financial resources and moderate levels of impairment to get timely help before they face a debilitating and costly crisis. By liquidating their housing wealth through a reverse mortgage, the 9.8 million candidate households dealing with some level of impairment would be able to access $695 billion in total through HECM loans. The 1.75 million candidate homeowners with an immediate need for help with ADLs or IADLs could access about $121 billion in total from these loans. These financial resources could have a significant impact on the well-being of impaired elders and their families. By having money of their own to pay for long-term care, elders can maintain their dignity, as well as retain some independence and control over their lives. For spouses and other family caregivers, these supports can help reduce the financial, emotional, and physical strain that often comes with caring for an impaired elder (Family Caregiver Alliance 2003).[38] Reverse Mortgages and Public Assistance Programs Many seniors appropriately question the impact of a reverse mortgage on their government entitlement programs: Social Security, Medicare, Supplemental Security Income or Medicaid benefits. Reverse mortgages do not affect Social Security or Medicare benefits because they are not based on the assets of the recipient. Federal SSI payments, however, require that beneficiaries keep their liquid resources under certain limits. Reverse mortgages offer the option of suspending payments if a senior is approaching the limit imposed by SSI guidelines.[39] Many states are creating legislation to assist seniors paying for home-care via reverse mortgages. These vary for state-administered programs such as Medicaid, Aid for Dependent Children (AFDC), and food stamps. The recommendation is that seniors consult local Council on Aging offices to determine how a reverse mortgage can impact local entitlements.
VII. CONCLUSION
Reverse mortgages may be an appropriate tool for improved quality of life and as a replacement for dwindling government assistance programs for senior care. Multiple state and federal organizations and agencies have spent considerable time and resources exploring and regulating this income-generating tool.[40] Demand for long-term care is growing in our rapidly aging society, placing an increasing burden on state Medicaid programs. As the second largest item in state budgets, Medicaid is already being targeted for cost control efforts.[41] In this tight fiscal environment, home equity could play an important role in reducing government expenditures for long-term care. As with all services tailored to the senior population, continuing oversight and guidance is necessary to prevent abuses.[42] [1]http://www.hud.gov/buying/rvrsmort.cfm [2] http://www.census.gov [3]http://www.ftc.gov/bcp/conline/pubs/alerts/revralrt.htm [4]http://www.aarp.org/revmort/ [5] http://www.consumeraffairs.com/news04/2005/ny_real_estate.html [6] Id. [7] http://realtytimes.com/rtcpages/20060515_toxicreversewidow.htm [8]12 U.S.C. '' 1715z-20(g) et seq.(1887)(Supp.V 1987), as amended by 12 U.S.C. '' 1735f-17(1990), 24 C.F.R. Parts 200 and 206 [9] http://www.reverse.org/History.HTM [10] http://www.reverse.org/History.HTM [11] www.aarp.org/revmort [12] http://www.yourhomeforlife.com [13] http://www.yourhomeforlife.com [14] http://www.hud.gov/offices/hsg/sfh/pred/predlend.cfm [15] http://www.hud.gov/offices/fheo/lending/index.cfm [16]15 U.S.C.A. §1644 [17] 15 U.S.C.A. § 1601 [18] 12 U.S.C. A. § 2801 [19] 15 U.S.C.A. § 1681 [20] Assessing a Reverse Mortgage, by Nena Groskind/BostonHerald.com; August 21, 2006 [21] http://www.mass.gov/legis/laws/seslaw98/sl980283.htm [22] http://www.aarp.org/money/revmort/ [23] http://www.nrmla.org [24] http://www.reversemortgage.org [25] Id. [26] http://www.reversemortgagetimes.org/pages/scamalert_01.htm [27] http://www.reversemortgagetimes.org/scamalert_01.htm [28] Id. [29] http://www.hud.gov [30] http://www.reversemortgagetimes.org/scamalert_01.htm [31] http://www.reversemortgagetimes.org/scamalert_01.htm [32] http://www.hud.gov [33]Use Your Home to Stay at Home, Expanding the Use of Reverse Mortgages for Long-Term Care: A Blueprint for Action, Barbara R. Stucki, Ph.D, 2005, The National Council on Aging, [34] Id. [35] MetLife Mature Market Institute, 2004b. [36]Use Your Home to Stay at Home, Expanding the Use of Reverse Mortgages for Long-Term Care: A Blueprint for Action, Barbara R. Stucki, Ph.D, 2005, The National Council on Aging [37]Use Your Home to Stay at Home, Expanding the Use of Reverse Mortgages for Long-Term Care: A Blueprint for Action, Barbara R. Stucki, Ph.D, 2005, The National Council on Aging [38]Use Your Home to Stay at Home, Expanding the Use of Reverse Mortgages for Long-Term Care: A Blueprint for Action, Barbara R. Stucki, Ph.D, 2005, The National Council on Aging. [39] http://www.reversemortgage.org [40] http://www.ncoa.org; http://www.hud.org; http://www.aarp.org [41]Use Your Home to Stay at Home, Expanding the Use of Reverse Mortgages for Long-Term Care: A Blueprint for Action, Barbara R. Stucki, Ph.D, 2005, The National Council on Aging [42] http://www.hud.gov/offices/hsg/sfh/pred/predlend.cfm
Estate Planning - Rich Dad, Poor Dad - Ask Mitt Romney
Follow my estate planning advice and you can be as rich as Mitt Romney. The Boston Globe has been running a multi-part story about Mitt Romney over the past several days. Politics and Bain Capital aside, Mitt Romney is a successful man. Mitt Romney is a rich man. Mitt Romney is a humble man. I don't measure a man by his bank account or his heartfelt opinions, I measure him by how he lives his life. I met Mitt Romney about eight years ago. Mitt and I maintained an odd sort of relationship over a couple of years. He and I would sit twenty feet apart each week for five hours at at time. We never shared a word, but our eyes would meet almost every Friday evening with a "hey neighbor" nod of the head. I represented a company in Utah that is in the legal and real estate software business. From 1999 to 2001 I attended regular Friday morning meetings at the company's office in Provo, Utah. Each Friday night I would fly Delta back to Boston. Invariably I would see the same well dressed man traveling alone sitting in the waiting area. Often he would be reading business papers, but just as often he would be passively enjoying the throng of people filing through the airport. He was Mitt Romney, head of the Salt Lake City Olympic Committee, but I didn't put his face with his name for several months. I noticed something very different about this well dressed and outwardly successful man right from the beginning. As we boarded the plane, each traveling alone, I would take my seat in the first class cabin (because I traveled so much Delta upgraded me on every flight) and Mitt Romney would take his aisle seat in the coach cabin. One time I glanced at the flight manifest that they tack up in the first class galley and saw that Mitt Romney's name was in the list with mine as a "medallion flyer", meaning that he had the same privilege to sit in the front of the bus. And he's tall, and he traveled frequently, but he sat with the people. This was a five hour plus flight at night. The plane was normally only half full and was one of those dull dark rambling flights bringing people from one place to another place without any fanfare. Mitt Romney was not being watched by the Boston Globe or New York Times, he was not even a politician - just a tired business traveler trying to be home for the weekend. Back to the Boston Globe story and how this relates to estate planning, elder law and lawyers in Massachusetts generally. I have no affiliation with the Church of Jesus Christ of Latter Day Saints (Mormons) - those that know me know that I would last about ten minutes with their prohibitions on coffee, foul language and alcohol - not to mention where I stand on virtually every social issue of importance in modern life. But I have developed a great respect for their single most important belief - that our families our bound to us forever and therefore of utmost importance. Mitt Romney and I see few issues the same way on the scorecard of politics that the media requires of candidates, but I still see Mitt Romney as a worthy man for leadership in America. That's not to say I'd vote for him, I probably won't, but if Mitt Romney got elected at least I would trust that he would act honorably. The Boston Globe ran a 37 picture album of the Romney family today. From Mitt Romney's childhood through to his wife's birthday party this past Spring his devotion to family is without peer. Mitt Romney reads to his grandchildren. Mitt Romney brings his kids to school on their first day. Mitt Romney cuddles with his newborn son. Mitt Romney holds his wife's hand. Mitt Romney came home on Friday nights to be with his family, steerage class. I recently heard a story about Michael Eisner, the former head at Disney, who apparently had a sign in his office that read "If you're not here Saturday, don't bother coming in Sunday." You won't see this sign in Mitt Romney's oval office. Sure, he'll be available for emergencies of state, but more likely Mitt Romney will be at church and playing Wiffle Ball with his sons on the lawn of the White House. Learn from Mitt Romney. Not the politics (we can have that discussion another time). Learn how the man has enjoyed unimaginable financial and personal success but still goes to his lake house in New Hampshire most weekends to pull water skiers and attend his grand daughters' tea parties. Mitt Romney's devotion to family is worth emulating. In my elder law practice more than anywhere else I see the opposite example. I see parents that never made the time to read to their children, counsel them when they had problems or share their hobbies. What does this breed? Ask Harry Chapin (Cat's in the Cradle). These children impoverish the spirit of their parents by not helping when their parents need help the most. These children impoverish their children by living as their parents lived. It is not too late to mend your ways, especially if you still have young children in the house. Bring a kid golfing with you (Mitt Romney was his father's caddy). Skip your weekly poker game and bring your kids to the movies. Tell your boss that you can't make it to that late meeting because your son has a little league game. Eat your meals together as a family, at a table, without a television or iPod and talk about the events of the day. Go camping, in a tent, with nothing run by electricity. Mitt Romney did these things in spades with his busy father and as a busy father. If you treat your children as an extension of yourself and you bond your family together on the premise that you will be spiritually together for an eternity or at least while your hearts are beating (whatever your beliefs may be), you will be rich - richer than you can ever imagine. Ask Mitt Romney.
Elder Law - HALF a Penny for Your Thoughts
A reverse mortgage to feed a slot machine? Can a car alarm reduce depression in elders? What can you buy for half a penny? I have just returned from an estate planning conference in Las Vegas. This was a conference like many others where we were trapped in a windowless conference room for hours on end as speakers droned on about the latest innovations in avoiding estate taxation and applying new techniques to serve estate planning clients. Yawn. Boring. A far better lesson in estate planning and elder law was available just outside the conference room doors. Those of you that have been to Sin City know exactly what I am talking about; those that don't are better off. Las Vegas, and gambling halls generally, have become the churches of Godless and desperate people. The vast majority of those in casinos are not there to blow off a little steam or throw caution aside for a few hours of distraction. No, the people who are drawn to this mecca of neon and nicotine come out of their own desperation. They come to be winners. The losers in modern American life - the sick, the unattractive, the decrepit, the old, the mentally ill - the losers come to have a chance, just for a little while, to be winners. They come for hope. Hope that the machine will tell them that they are jackpot winners by making noises and illuminating bright lights. Casinos are ordinarily divided into two main sections, one for table games (blackjack, baccarat, roulette, craps) and one for slot machines (the infamous "one arm bandits"). Walking around the casinos it quickly became apparent that those playing at the tables were mostly younger and middle aged men, mostly in small groups, making some serious calculations of their potential success. These were men who knew the odds and were consciously putting their money on the line strictly for a speculative financial return. Many of these men lead ordinary lives as lawyers, accountants, managers - people who take little risk in their "day" jobs, but vent their conservative natures from time to time by visiting Lady Luck. These are the same folks who drive Toyota Camry's during the week and Harley Davidsons on the weekend. Put in perspective, these gamblers understand the risks they are taking at the tables and are prepared to lose their grubstake as dues for the release that being a "player" brings to them. Seldom do these gamblers gamble their rent or food money. Since there were two people who could communicate with each other there was this type of gambling - "hey Org, I'll bet you a rock that you get eaten by that sabre tooth tiger first!" As an elder law lawyer, I am far more concerned with the other side of the casino. Like a vast sea of buzzing alarm clocks, beeping microwave ovens and unstoppable car alarms - the cacophony of the slot machine areas in casinos sounds like a virtuoso performance to those seeking to be winners. BAR - BAR - BAR. 7 - 7 - 7. With carpal tunnel inducing repetition the nicotine induced masses monotonously search for the machines' positive feedback. Most of the people at the slot machines appear to be obsessed by the prospect that they could be winners - some of the machines even say "You're a Winner", never telling you that you are a loser. But these people are the losers in life. Whether by illness, financial distress or merely addictive natures, many people are drawn to spending what remains of their lives and savings fixated on the hope of positive reinforcement from a machine. The real walk-out-the-door payouts are meager. Few walk out of the casino with a surplus - they let it ride, and when they do, they lose. Like the lonely elders who spend all their money on meaningless junk just so they can chat with their favorite Home Shopping Network or QVC operator, casinos provide a sense of community in a soulless country that abandons its losers. This is not a good reason to keep building casinos. It would seem that the vast majority of the masses in the Las Vegas casinos are there to pass time in an atmosphere where there is a chance of rising from the crowd, where your car alarm goes off, your lights blink and everyone knows that you're a winner. I am concerned that far too many elders are in casinos with funds that they need for their own protection. In fact, I recently became aware of a reverse mortgage company that is promoting their services along side a major casino. Reverse mortgages have an important place in elder law planning. They are a financial tool to protect an elder's standard of living, dignity and sense of place in remaining in their own home. Reverse mortgages are not a remedy of last resort. By advertising reverse mortgages in a context of gambling is mercenary and solicitous of the very people who need sound financial planning and advice from a competent elder law lawyer. A casino in Connecticut that advertises heavily in the Boston market, Mohegan Sun, offers this new innovation: ************[from MoheganSun.com]**********"It’s the latest trend in slot machines and only Mohegan Sun has it. The Northeast’s premier entertainment destination installs 20 half-cent slot machines in its Casino of the Earth and Casino of the Sky. This makes Mohegan Sun the only destination in the United States to offer this new technology. This latest offering allows customers to wager half a cent instead of the traditional quarter, dollar or even penny it's just another way Mohegan Sun is revolutionizing the gaming industry.********** You read it right. HALF-cent machines. Boy, they sure are revolutionizing the gaming industry. And legislators say that casinos are not preying on the elderly? The poor? The stupid? (I personally believe that stupid people should be protected from themselves when at all possible.) Apparently the government is so blinded by the voluntary tax dollars that pour into state coffers that they don't see the societal and financial evil brought on by the wholesale distribution of false hope and deus ex machina for sad lives. This is the same government that cannot provide long term care without impoverishing its people, cannot offer even a remotely intelligible drug benefit for Medicare recipients and is afraid to impose meaningful taxes on the very rich. I imagine there are many casino owners in that category - they are easy to recognize, they are laughing and like a heroin dealer that never shoots up, you won't see them pulling the handle of that revolutionary ha'penny machine. We don't need more casinos. We don't need any casinos. I think we need some new ideas. As many know, I love inventions. My latest invention? The Jackpot Emulator (tm). I see this as a Medicare reimbursable device not unlike a prosthetic or a wheelchair. Like a slot machine in every way, but the JE does not require the payment of any money, nor does it pay out any money, but rather brightly colored slips of paper that exclaim - YOU'RE A WINNER!! For the cost of the machine and a little electricity we could set up Jackpot Emulator (tm) rooms in nursing homes and senior centers where elders could push buttons and hear whirring happy sounds to their hearts' content and then go home with the satisfaction of being a "winner" with no possible way of putting their personal financial security at risk. Now that is revolutionary.
Reverse Mortgage Alphabet Soup - FHA; HECM; MIP; NRMLA; H.R. 1852
Reverse mortgages are statutory creatures. Reverse mortgages exist because the Congress says that they exist, and so, they are creatures of government standard abbreviations. Just like being at OCS to get your O-1 and then a rack in BOQ for USN-SWOS. For land-lubbering taxpayers, that's Officer Candidate School for Officer Grade 1 (Ensign) and housing in the Bachelor Officer Quarters at Surface Warfare Officer School in the US Navy.
Go HERE for an exhaustive listing of all the terms and features of FHA's (Federal Housing Administration) products and services.
But today's blog is about something far more exciting than abbreviations, although without them the short press release below from NRMLA on the FHA H.R. 1852 HECM modernization plan would be nearly incomprehensible. *********
NRMLA Anticipates Movement on FHA Modernization Bill
NRMLA is hopeful that the FHA modernization bill (H.R. 1852) will start moving in the next couple weeks and be voted on by the full House of Representatives after the July 4th recess.
Sponsored by Financial Services Committee Chairman Barney Frank (D-MA) and Rep. Maxine Waters (D-CA), the bill would: 1) Permanently eliminate the HECM loan cap; 2) Permit HECM for home purchase; 3) Allow HECMs on housing cooperatives; and 4) Require HUD to study the impact of reducing mortgage insurance premiums, and exempting borrowers from paying any MIP if all, or a portion, of the loan proceeds are used to purchase long-term care insurance.
In addition, H.R. 1852 would increase lending limits for all FHA programs, especially in high-cost areas, like California, New York and Massachusetts by raising FHA's maximum mortgage limits to 100 percent of an area's median home price.
Over the past couple weeks, NRMLA has been negotiating with other stakeholder groups to remove a provision that would lower origination fees on HECMs to no more than 2% of the "original principal limit of the mortgage." Stay tuned for further updates.
******** I like to say that we are at the beginning of the beginning for reverse mortgages. As much as reverse mortgages have been around for 40 years in a formal sense (and over 2,500 years in other forms - a short history of the world of reverses is coming soon), reverse mortgages are metaphorically hitting their next threshold in Moore's Law. Which is a nice way of saying that the market for reverse mortgages is growing at an exponential rate - and with all good growing businesses; it's ripe for more government regulation.
H.R. 1852 as set out above, starts to address the initial framework of reverse mortgages - a framework that served us well until now. Reading some of the dicta and side notes of the committees behind this legislation reveals that the government did not expect reverse mortgages to be so successful a product so fast. It makes you almost wonder whether there will be a rush to "irrational exuberance" over reverse mortgages? I don't believe that the market will ever become large enough to impact the overall economy too much, but it will be interesting to watch seniors taking responsibility for their own expenses from their own wealth and not relying on government programs or family members for their living expenses. A reverse mortgage is the ultimate libertarian gesture - I will take care of myself, thank you very much. Should be really popular in New Hampshire.
Looking in the crystal ball I think that you will see MIP (mortgage insurance premium) get rolled into the interest rate of the reverse mortgage loans and all but disappear. Despite NRMLA's obvious incentives in maintaining high loan origination fee caps, you will see a study and drastic reduction in the overall cost of originating reverse mortgages. I think that price competition, which has essentially destroyed the conventional forward mortgage business, will come into the reverse mortgage market. This price competition will at first cause the early entrants to lose market share and gross revenue and for new entrants to take business. Over time it is my opinion that the reverse mortgage lenders that embrace seniors, understand the good karma of reverse mortgages and only sell to those that truly need reverse mortgages will be rewarded with lasting market share. When banks take reverse mortgages as a product focus, especially Bank of America, we will see a transformation of the marketplace that will further and permanently reduce the costs (and therefore origination revenue) of reverse mortgages across the board.
Just so you all know I will be on vacation for the next couple of weeks, so please expect pretty light blogging. Happy 4th of July.
Probate - Where There's a Will, There's a Way - to the Massachusetts Probate Court!
I have been asked over and again by my blog readers to give a simple outline of what needs to be done upon someone's death. So, because it is both a popular subject and really something that everyone will need to address in one manner or another, here goes. In Massachusetts, probate is the process by which a deceased person's property, known as the "estate," is passed to his or her heirs and legatees (people named in the will). The entire process, supervised by the Massachusetts probate court, usually takes a little longer than a year. However, substantial distributions from the estate can ordinarily be made in the interim so long estate tax and creditor obligations can be determined with some degree of certainty. The emotional trauma brought on by the death of a close family member often is accompanied by bewilderment about the financial and legal steps the survivors must take. The spouse who passed away may have handled all of the couple's finances. Or perhaps a child must begin taking care of probating an estate about which he or she knows little. And this task may come on top of commitments to family and work that can't be set aside. Finally, the estate itself may be in disarray or scattered among many accounts, which is not unusual with a generation that saw banks collapse during the Depression. Here we set out the steps the surviving family members should take. These responsibilities ultimately fall on whoever was appointed executor or personal representative in the deceased family member's will. Matters can be a bit more complicated in the absence of a will, because it may not be clear who has the responsibility of carrying out these steps. First, secure the tangible property. This means anything you can touch, such as silverware, dishes, furniture, or artwork. You will need to determine accurate values of each piece of property, which may require appraisals, and then distribute the property as the deceased directed. If property is passed around to family members before you have the opportunity to take an inventory, this will become a difficult, if not impossible, task. Of course, this does not apply to gifts the deceased may have made during life, which will not be part of his or her estate. Second, take your time. GRIEVE. You do not need to take any other steps immediately. While bills do need to be paid, they can wait a month or two without adverse repercussions. It's more important that you and your family have time to grieve. Financial matters can wait. (One exception: Social Security should be notified within a month of death. If checks are issued following death, you could be in for a battle. For more on Social Security's death procedures, click on http://www.ssa.gov/pubs/deathbenefits.htm) When you're ready, but not a day sooner, give me or another Massachusetts probate lawyer a call to review the steps necessary to administer the deceased's estate. Bring as much information as possible about finances, taxes and debts. Don't worry about putting the papers in order first; as full service probate lawyers, we have experience in organizing and understanding confusing financial statements. The exact rules of Massachusetts estate administration differ are complex, so it is best to speak with a probate lawyer. In general, they include the following steps: 1. Filing the will and petition at the Massachusetts probate court in order to be appointed executor or personal representative. In the absence of a will, heirs must petition the court to be appointed "administrator" of the estate. 2. Marshaling, or collecting, the assets. This means that you have to find out everything the deceased owned. You need to file a list, known as an "inventory," with the probate court. It's generally best to consolidate all the estate funds to the extent possible. Bills and bequests should be paid from a single checking account, our law firm would establish and help you administer this account, so that you can keep track of all expenditures. 3. Paying bills and taxes. If an Massachusetts (or Federal) estate tax return is needed---generally if the estate exceeds $1 million in value---it must be filed within nine months of the date of death. If you miss this deadline and the estate is taxable, severe penalties and interest may apply. If you do not have all the information available in time, you can file for an extension and pay your best estimate of the tax due. 4. Filing tax returns. You must also file a final income tax return for the decedent and, if the estate holds any assets and earns interest or dividends, an income tax return for the estate. If the estate does earn income during the administration process, it will have to obtain its own tax identification number in order to keep track of such earnings. Our law firm has a CPA on retainer to make all of this simple and easy for our probate clients. 5. Distributing property to the heirs and legatees. Generally, executors do not pay out all of the estate assets until the period runs out for creditors to make claims, which in Massachusetts is a year after the date of death. But, in many cases, once the executor understands the estate and the likely claims, he or she can distribute most of the assets, retaining a reserve for unanticipated claims and the costs of closing out the estate. 6. Filing a final account. The executor must file an account with the Massachusetts probate court listing any income to the estate since the date of death and all expenses and estate distributions. Once the court approves this final account, the executor can distribute whatever is left in the closing reserve, and finish his or her work. Some of these steps can be eliminated by avoiding probate through proper estate planning and through the use of trusts. Whoever is left in charge still has to pay all debts, file tax returns, and distribute the property to the rightful heirs. You can make it easier for your heirs by keeping good records of your assets and liabilities. This will shorten the process and simplify things for your probate lawyer (thank you for that, by the way).
Elder Law - A Reverse Mortgage Lawyer at Home
Over the years I have learned that elder clients are not so much disturbed about their eventual deaths as they are about changes in their lives as they age. I think it's true about houses too.Just yesterday I sat with two elderly sisters who have lived together in the same house for their entire lives (a combined 187 years!!). One of the sisters is seriously ill with a prognosis of about 6 months to live while her older sister has mid-stage dementia and no longer recognizes her sister. It is time for them to move to a nursing home, but how do they leave their home of so many years? Who will tend the roses? How will the birds (and squirrels) make it through the Winter without their help? Will the new owners be able to make that quirky furnace run properly? Does The Globe deliver to nursing homes? These are the real questions I was asked. I couldn't bring myself to tell them that the house will likely be bulldozered in favor of a couple of townhouses. I believe that there is a karma to a house, good and bad. When I am working on probating an estate I am often called to go in and evaluate properties. You can almost hear the children singing happy birthday, the puppy chewing the corner of the good oriental rug, the smell of grandmother's garlicky tomato "gravy" for Sunday dinner. Sometimes I hear the raised voices of a bad marriage fueled by alcohol and crushing debt, or the long suffering of a COPD patient dying slowly before their loved ones, and all too often the nightly crying of a lonely widow pining for her long lost bedfellow. Are there ghosts? Is it spirits?In this modern age so many people think of their houses as mere way stations as they are transferred up the corporate ladder. Or perhaps they never find the family's home as they feel compelled to upgrade their house and furnishings in each new wave of fashion, like shoes or hairstyles. I feel sorry for people who do not have the patience to impart their personal signature on a place; stay a while, you'll like it - and it will like you back. From a financial perspective, those clients that have stayed in their homes for many years and have been able to pay off their mortgages one payment at a time enjoy much more financial stability than those clients that have progressively taken on more and more mortgage and other debt to acquire real estate they think will make them 'happy'. My Massachusetts legal advice to first time home buyers? Find a happy house. Spend a couple of hours enjoying tea in its living room with the lonely widow before your closing. Ask to keep a photo or chatchke of the seller as a piece of goodwill. Leave a little corner of that awful wallpaper. Stay in the house as long as you can, feel the good karma. And when you sell that happy little house, shed a tear as you drive away. Elder homeowners' advice from a Massachusetts lawyer? Stand your ground. Don't sell your house until you cannot make up the stairs or you can't get a neighborhood boy to shovel the snow. If the money runs out, use a reverse mortgage to tap that hard fought equity. Take care of yourself, first. Don't let a real estate broker convince you that leaving the house is the right thing to do. Make sure you believe that it is the right thing to do. Ask your kids to move home with you with their families. This was always the way in the old days, and it wasn't such a bad idea.
Elder Law - Help for Long Term Care Planning
The concept of eldercare or long term care planning is fairly new. A fast-growing generation of elderly people needing care is starting to put a great deal of pressure on caregiving family members and government programs for long term care. More and more we are seeing articles and books about the burden of long term care on families. And a huge group of 77 million baby boomers, poised for retirement, is causing alarm in the eldercare provider community. Over the years, we have met with many families in a crisis mode, struggling to find services and preserve assets for loved ones needing long term care. When statistics tell us about one out of two people will need long term care, it's appalling that most of the current generation of elderly have not planned for this crisis in their lives. And the current pre-retirement generation is doing no better. Sometimes I think Americans are about as unprepared as the ancient tribes of Israel wandering in the desert. When the time comes for long term care, most people believe help will come to them like manna from heaven. In most cases this won't happen. I've encountered it so many times, I am no longer surprised when people ask me if there's not some kind of government program that will pay them to quit their jobs and to stay at home and provide long term care for their loved ones. According to research By the National Care Planning Council only about 16% of long-term care services are covered by the government. The other 84% are provided free of charge by family caregivers or provided by services paid out-of-pocket by families or from those receiving care. And the bulk of government care services are provided only after a care recipient has depleted all of his or her savings. The Council also estimates that at any given time approximately 22% of the population over age 65 is receiving some form of long term care support. According to an April 2005 congressional hearing press release from Congresswoman Nancy L. Johnson (R-CT), Chairman, Subcommittee on Health of the Committee on Ways and Means, "...In 2004, according to CBO, approximately $135 billion was spent on long term care for the elderly. Sixty percent of this amount was financed through Medicaid and Medicare, one third through out-of-pocket payments, and the remainder by other programs and private insurance. This funding excludes the significant resources devoted to long term care by informal caregivers (primarily spouses and children). The CBO estimates that informal care is the largest single component of long term care...." In conjunction with the spending estimates above, the National Care Planning Council has actually estimated the equivalent cost of care provided for free by informal caregivers. We think it is close to a staggering $313 billion for the year 2005. This is almost four times the amount the federal and state governments currently pay for all long term care services nationwide. It would bankrupt the federal and state governments if they had to pick up the cost of these free services. Many groups are pushing for the government to do just that -- pay a greater share of informal care services. The process of long term care planning involves seven steps that embody the following four principles: Knowledge is the key to success. Professional help is crucial in saving time, money and stress. The planning process is most effective when there is money available. Success is assured through a written agreement with all parties involved. "Guide to Long Term Care Planning" is a new online resource developed by the National Care Planning Council for use by the public and to support the Long Term Care Consumer Awareness Campaign from the Department of Health and Human Services. This free, noncommercial source of information is the largest and most comprehensive work on long term care planning ever produced. This public-service, online publication contains over 670 printable pages including 96 charts and graphs. It is written by eight experts and organized into 35 chapters. It also includes a section on helping seniors with the new Medicare prescription drug benefit. The URL for this online publication is found at www.longtermcarelink.net/guide.
Reverse Mortgage - Beer, Donuts & Golf?
Massachusetts lawyers act as title companies in virtually all real estate transactions in Massachusetts. This has been the case for several hundred years. Not to bore you with history, but I need to set the scene, it all goes back to the China Trade when wealthy merchant marine captains would set out for years long voyages in search of fortune. While they were away they entrusted their Boston lawyers to conduct their business for them with the banks and protect their families generally. This led to lawyers in Massachusetts taking on the role of trustee for wealthy families, but also put them firmly in control of the transfer of real estate and bank relations. Until recently the Massachusetts Real Estate Bar called it "conveyancing", I guess to make it sound more British. Whatever the case, lawyers as title companies and corporate title companies in most other states developed rapidly after World War II due to the large number of returning veterans seeking the American Dream. As mortgage lending became more commonplace and title insurance more lucrative for title insurance agents, lawyers embraced conveyancing as a money making practice area. For the first several hundred years of real estate closings in Massachusetts conveyancers were highly skilled technicians who were able to interpret the often cryptic records of land ownership left to us by our ancestors. It was tedious and persnickety work. The fees were based on the work performed by the lawyer and a lawyer could make a good day's wage for drafting mortgages and recording deeds. In the early 1970's title insurance became a required element for most mortgages. Title insurance for the most part is an assurance to a mortgage lender that it is in first lien position on a particular parcel of land on which it has placed a mortgage lien. In its simplest form title insurance is what enables the American financial community to provide ready capital and reasonable rates to the market place as it helps to commoditize mortgages so they can be converted into financial vehicles on Wall Street. The basic protection of title insurance is vital and beneficial to both mortgage lenders and their customers. In Massachusetts, virtually all title insurance is sold by lawyers as agents for the major title insurance underwriters, companies include: Ticor Title Insurance - Fidelity Financial; Stewart Title; Old Republic; LandAmerica (Lawyers & Commonwealth brands); and Talon Group - First American. Each of these companies offers a similar product developed in cooperation with the American Land Title Association which serves as the trade association for the title insurance industry. Boy, this blog is really boring. Where's the beer, donuts & golf? Title insurance is sold in Massachusetts based on a formula of coverage per thousand dollars of loan amount or purchase price. There are essentially two core products, lender title insurance to protect the lender's interest and owner title insurance to protect the home owner's equity in the real estate. There are a few other bells and whistles, but it is essentially a vanilla product to consumers. Title insurance in Massachusetts is underwritten by lawyers by virtue of completing a title examination and reviewing the summary or title abstract to assess risk. Title insurance is paid for by the consumer as part of the closing costs. The other major closing cost paid by the consumer for title services is ordinarily paid in the form of an attorney fee. In my 17 years of working in the mortgage and real estate industries in Massachusetts not only has this fee decreased in nominal terms, but taking inflation into account it has actually decreased by more than 50%. Did he say attorney fees have decreased by 50% in real terms over the past two decades? Yup. What gives? Title insurance agents are paid a commission for underwriting and selling title insurance. A big, big commission. In Massachusetts, lawyers are paid an average of 70% of the title insurance premium in addition to their attorney fee. Lenders direct which lawyer will conduct which real estate closing. Lawyers who do closings have become specialized in handling large volumes of real estate transactions thanks to the Internet (for searching records) and transaction management systems (like the company I co-founded, E-Closing) to e-recording (like the other company I co-founded, SimpliFile). It can be a very financially rewarding business in Massachusetts, just like in the rest of the states where most closings are conducted either directly by the title insurance companies or by corporate style title companies (not lawyers). Closing lawyers want to close loans quickly, efficiently and profitably. You said there would be beer, where's the beer? Due to a number of factors, such as the large number of law schools in Boston, the overall high profit in closing mortgage loans and the relative ease of entry into the closing business; conveyancing is a highly competitive business in Massachusetts. The most successful closing lawyers are expert marketers who can swing a golf club with bankers and tell great stories at the 19th hole (NOTE: for those that don't know, the 19th is where the beer can be found). They have attractive and persuasive staff calling on their customers with donuts and smiles, not unlike those Pfizer or Merck representatives with the trays of sandwiches and freebies for doctors. There is nothing wrong with any of this, it's how the forward mortgage and closing business is done. In addition, the lawyers will send potential borrowers to the lenders that they work with as a way to keep the skids greased and to show good faith in the relationship. The lenders rely on referrals from their closing lawyers and in many cases make it a declared ab initio to any new business. My law practice includes, as you would expect, a significant number of mortgage lenders and banks that hire me to develop strategies for reverse mortgages, automate closing processes and conduct training programs for loan and branch staff. A few weeks back I was asked to meet with one of the leading mortgage companies in the Northeast (by dollar volume) to discuss making them a market leader in reverse mortgages. We discussed my role in marketing, training, product selection, etc. As compensation we discussed my role conducting reverse mortgage closings in the states where we are licensed for the title business (MA, NH, ME, RI, NY). I explained how my law firm has special expertise in this business. We treat reverse mortgage closings very differently than conventional mortgage closings. This is due, more than anything else, to the fact that we consider ourselves elder law lawyers first and not only lawyers engaged in the business of closing mortgage loans. We add significant value to every mortgage loan that we close through compassion, experience and patience. A reverse mortgage closing should be unlike any other closing. First, we assist the borrower with understanding their estate planning and asset protection planning issues. Then, we evaluate their government benefits to determine the appropriate lending program and to counsel them on potential traps in the reverse mortgage lending process that may lead to adverse consequences. We call borrowers in the morning when they are most awake and can understand what we need from them. We plan two hours for each closing. We show up on time. W e s p e a k s l o w l y. AND LOUDLY. We bring felt tip pens to make signing easier for arthritic hands. We enlarge the document copies so tired eyes can actually read them. We speak English. We welcome them to have their children or best friend at the closing. We stop to drink the tea and stale cookies that we are offered. We ask about that Army medal proudly hung above the mantel. We touch their hands when they tell their life stories. We tell them about our kids and where our parents grew up. We tell them to call us if they have any questions (and we mean it). We bring their first disbursement checks to their bank for them and call so they don't worry about it getting in the bank. We thank them for their time. The big mortgage company said that my thoughts on the subject were quaint but that "business is business" and they didn't have the time to coddle every borrower. "We need to fill the pipeline and get these numbers up, we want to be number one!!" "Ever read the Lorax by Dr. Seuss?", I thought to myself. They decided that they would continue to use the golf buddies of the company founder for closings, because, I quote "they will be able to refer us the reverse mortgage business to help us grow, our closing lawyers get business because they give us business and close deals no matter what." Ouch. Where are they going to find impoverished elders? The golf course. When elders consider borrowing on a reverse mortgage many emotions become part of the equation. A good friend in the reverse mortgage business (he is actually "number one" in my book) always says "reverse mortgages are not sold to people, they are presented and it either makes sense or it doesn't." If mortgage lenders treat reverse mortgages as just another product in their arsenal and not as the special estate planning tool that it is, we will be seeing abuses of the elderly of epic proportion in the coming years. NOTE TO MORTGAGE LENDERS (in Massachusetts and elsewhere): Make the connection between a compassionate elder law lawyer that cares about the protection and well being of the elder community and the closing of a reverse mortgage (invite them to go out with the title company or loan originator to check on the borrower's well being.) Be like those far away ship captains knowing that their loved ones are in the safe hands of a Boston lawyer focused on nothing more than their well being. Don't be swayed by what makes you happy in the forward world (beer, donuts, golf?), what will make you a happy lender in the reverse mortgage industry is tea, stale cookies and bingo.
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