Real estate subject to a “reverse-mortgage” is valued the same way that real estate subject to other sorts of mortgages are for purposes of bankruptcy. Both an “ordinary” mortgage and a reverse-mortgage are liens against the value of the property that will affect the determination of whether the owner of the property actually has any equity in it or not. In this manner, there is no difference between the two types of liens, and a determination that a debtor has no equity in his or her real estate governs the options available for retaining the property through bankruptcy.
The difference between the two lies not in valuation of the property but in the chief benefit that consumers look to reverse-mortgages to receive: a line of credit. Typically, in the most common reverse-mortgage situation, a homeowner meeting certain criteria assigns a future interest in the full value of the real estate—their home, generally—in exchange for a line of credit which pays out a set amount per month for an allotted period of time, which, in many cases, particularly with regard to elderly consumers, may be the remainder of the consumer’s life. It is a means for a consumer living on limited income, often, to increase their monthly standard of living without losing the benefit of the roof over their heads—at least, when it works as advertised (I won’t comment further here about when this is or isn’t the case).
When that same consumer, however, runs into other trouble and needs to file for personal bankruptcy, the sticking-point for debtors with real estate subject to a lien that is a result of a “reverse-mortgage” is whether or not the finance company providing the reverse-mortgage will continue to provide the line of credit to the consumer under the terms of the original reverse-mortgage agreement. Whether or not this is the case is determined by a wide variety of factors, such as the amount of credit remaining in the line of credit, the business strategy of the finance company when confronted by such situations, as well as others.
If you are a southeast Michigan resident and are considering filing for bankruptcy, please contact me at (866) 674-2317 or john@hillalaw.com to schedule a free, initial consultation.
I am 82 and my wife is 80. We have a reverse mortgage whereby the total amount of the loan is about what the home is worth. If it becomes necessary for us to file for bankruptcy, will we still be able to live in our home as long as one of us lives there when we continue to pay our taxes, association fees and home insurance? Without any equity in the property, if a creditor filed a lien on the home anyway, would that cause the mortgage to become due and payable then. I don’t think this is going to happen but if it did, I need to know how it will affect our ability to stay in the home. Please advise! Thank you! Frank Hooper
Thank you for writing, Mr. Hooper. I would be happy to answer your questions if you would like to contact me at (248) 977-4182. Please note that I am able to represent Michigan residents only.