Addressing myths and misconcep-

Today I would like to write about some of the most most common myths and misconceptions about reverse mortgages. Yesterday, therewas a Realtor that I know in line in front of me at the credit union. He said he was surprised that another Realtor he knew was handling a foreclosure on a property that had a reverse mortgage. “Doesn’t the bank own the house after the people die?” And that is the Number One misconception.

People forget that the borrower or borrowers remain in title to the property and that the lender just has a lien on the property. If the borrower passes away, unless the estate deeds the property to the lender, the lender has to do a judicial foreclosure to gain legal ownership. Then they can list it for sale. This is assuming that the estate did not want to try to sell the property themselves, so they would get any remaining equity in the property after the sale.

Another commonmyth is that reverse mortgages are only for people experiencing a financial hardship. Although a reverse mortgage can help solve some financial problems, more people and financial planners are realizing that a reverse mortgage can be an important component in someone’s financial plan. I have recently done several reverse mortgages for people who had substantial money in the bank. They had properties that did not have a mortgage, butwanted to add to their financial reserves with a reverse mortgage line of credit. As with most people, the property represented one of their largest investments. They now have large lines of credit that they can easily access in the future. They also know that the line of credit has a growth feature, so that they will have additional money later. The line of credit grows by a factor of the interest rate plus half a percent.

This leadsme to the third most com- monmisconception, that youmust own the property free and clear in order to apply for a reverse mortgage. You can have a mortgage on the property, but I have to be able to pay in it off with the proceeds fromthe reversemortgage. I have done several reverse mortgages to pay off large conventional mortgages. This improved the borrowers cash flow by eliminating the mortgage payment. I have had individuals who retired immediately after converting their mortgages to reverse mortgages.

Finally, a commonmyth is that the money received from a reverse mortgage is taxable as income. Since the money received from the reverse mortgage is loan proceeds that will eventually be repaid, the money received from the reverse mortgage is not reported as income.

Before I close, I want to apologize to my friend Lawrence Herman for misnaming his company inmy last column. It is “Accessible Housing Solutions: Home Modifications for Aging in Place.” He can be reached at (949)285-6034.

John Ruybalid is a reverse mortgage professional with American Advisors Group. He can be reached at (505)690-1029. His office is located in Santa Fe.