I’m an elder law attorney in Indiana who has a client with a problem similar to the one you previously wrote about.
After my client’s husband passed away, she could not afford the mortgage on just her Social Security payment. She therefore obtained a reverse mortgage out of which the closing agent paid off the existing mortgage. The mortgage covered two separate adjacent lots. No survey was ordered, but my client paid for a title search, a title insurance policy for the lender and for the preparation of all loan documents.
The title company and closing agent were from a neighboring state, and the mortgage was prepared by someone in Texas. My client’s kid had been living with my elderly client for over 10 years and kept her out of a nursing home. At the reverse-mortgage closing, the loan documents included only one of the two lots of my client’s property. So the mortgage covers one lot and one half of the house.
My client has no will and has now resided in the nursing home for over a year. The lender has now made a 30-day notice of foreclosure. I have been unable to find any case law or regulations on this problem.
Do you have any advice for me? I wrote to everyone involved (the appraiser, title company, document preparer and closing agent) to put them on notice that the claim should be against the title company and not my client.
That’s quite the story. While we are not in the business of doing legal research on specific cases, it seems to us that your client would have been unjustly enriched if the lender was unable to foreclose on the property to recover the amount owed under the loan.
Yes, the mortgage might be defective, but the lender would still have had a promissory note paid by your elderly client with an obligation to repay the debt owed the bank.
If the lender is unable to foreclose on the home, the lender could sue your client, obtain a judgment against your client and then use that judgment to foreclose on the home.
So we’re trying to understand what your client’s child’s intent is. Under reverse-mortgage rules, once a senior citizen ceases to live in the residence for good, the home is supposed to be sold, the reverse mortgage paid and the remaining proceeds paid to the homeowner or to property owner’s heirs. Even if your client’s child is at least 62 years of age, he or she doesn’t co-own the property. You might be able to delay the lender from foreclosing on the property for a while, but ultimately it will probably prevail.
At issue is whether your client has moved out of the home permanently or whether your client has left the home for over 12 months. You indicated she’s been out for over 12 months, so she may have lost the right to keep the reverse mortgage. If your client can move back into the home — even with full-time home care — she might be entitled to keep the reverse mortgage for a while longer; otherwise, she may have to sell.
In terms of trying to forestall the foreclosure, the lender probably has a claim against the title company. If the title company were to pay off the lender on the reverse mortgage, the title company might then have the right to pursue your client for the repayment of the debt. If that were to occur, the title company might wait awhile before foreclosing on the loan. However, because reverse loans don’t have recurring payments to the lender, the title company may try to step into the shoes of the lender and foreclose quickly against the home.
So your letter directing the lender to pursue a claim against the title company may not buy you much time. Ultimately, you are talking about a mistake that was made at the time your client took out the reverse mortgage. And given reverse-mortgage rules, it would seem that your client should sell the home and take whatever money she can get from the sale as opposed to having the lender foreclose and sell it for a fraction of what it’s worth.
Ilyce Glink is the creator of an 18-part webinar and e-book series called “The Intentional Investor: How to be Wildly Successful in Real Estate” as well as the author of many books on real estate. She also hosts the “Real Estate Minute” on her YouTube channel. Samuel J. Tamkin is a Chicago-based real estate attorney. Contact them at ThinkGlink.