Reverse mortgages and nursing home care

Plus, more on applying for deferred payment loans

Realty Q&A is a weekly column in which Lew Sichelman, a nationally syndicated columnist who has been covering the housing market for more than 40 years, responds to readers’ questions on real estate.

WASHINGTON (MarketWatch) — Question: I read your articles about reverse mortgages, but there’s an issue that is much overlooked, not just by you but most others who write about the topic. If a patient takes out a reverse mortgage and receives a lump-sum, they’re often ineligible for Medicaid to pay for nursing home care. 

The rules are very complicated, but generally speaking, Medicaid allows you to have no more than $2,000, plus a house and an automobile. If a patient is married, there are special considerations. I’m a social worker of 23 years, specialized in the medical field. Payment for nursing home placement is a huge problem that’s only gonna get more complicated.

I’m attaching a copy of my e-book, “The Nursing Home Survival Guide,” which addresses the issues (and much more). Eventually I’m hoping to self-publish, but for now I sell it at patrick.net as an e-book. I’m sending it to you so that, if you wish to learn a bit more about Medicaid or nursing home issues, you have the tools. —Sharon Johnson.

Answer: You are correct. This is one of the little understood — and under-publicized — aspects of taking out a reverse mortgage.

Whereas a reverse mortgage does not affect Medicare or Social Security, it can impact eligibility for Medicaid as well as Supplemental Security Income (SSI). If you opt for a lump-sum payment from a reverse mortgage, any amount retained the month after you receive it would count as a resource and could affect SSI or Medicaid coverage. Also, when the proceeds of a reverse mortgage are paid out on a monthly basis, the payments act to increase the senior’s income and could possibly render him or her ineligible for Medicaid.

As you point out in your e-book, reverse mortgage lenders tend not to mention — and seniors rarely consider — that they could end up in a nursing home. While loans that allow seniors to tap into their home’s equity to improve their later-years’ lifestyle, they could prove to be deadly — financially speaking — if they must move into a nursing home, even if only on a short-term basis. If you are unable to make your Medicare co-payments and you have no supplemental insurance to help offset the costs, you could end up paying for your care out-of-pocket, which will eat into your reverse mortgage proceeds pretty quickly.

If a nursing home might be on the horizon within the next five years, seniors considering a reverse mortgage would do well to consult with an attorney who specializes in elder law, or some other expert who understands the nuances of exactly how Medicaid and SSI work.

For more detailed information, try www.longtermcare.gov .

Question: I’m a loan originator. Not that I would generally be working with borrowers considering reverse mortgages, but I would like to provide my borrowers and their families with all the best information. How would one go about applying for a deferred payment loan ( Realty Q&A, May 20, 2011 ) in the San Francisco Bay Area? I also have an aunt in Maine who needs help meeting her tax obligations. Do you know the agencies/ organizations in those two markets that can help with DPLs? —Rob Borghese, Landmark Real Estate.

Answer: Many, many readers have asked the same question: Where can I find out more information about deferred payment mortgages and other alternatives to reverse loans? I can’t tell each and every reader where specifically they can find help in their particular communities, but I can offer the following possibilities:

Contact the local municipal housing authority, the area agency on aging or your closest community action or community development authority, your state housing finance agency or a local housing counseling agency. Any of these should be able to help.

Also, try looking around at the National Council on Aging website — www.benefitscheckup.org — to locate one or more than the 1,000 housing and non-housing benefit programs available to seniors nationwide.

Feedback: Several weeks ago ( Realty Q&A, March 18, 2011 ) I emailed you about my frustration with my loan servicer who had incorrectly paid a bill from my escrow account in the amount of $1,797.99 in November 2010. This reduced my account to a negative. Although a customer service rep had assured me the error would be corrected and the funds replaced, I am still waiting and have received no communication from them, not even the courtesy of a reply to my repeated emails. (They will not provide a telephone number, just email.)

Today, I received an email that the annual review of my escrow account will be made within the next 30 days. Because of their deficiency, not mine, I expect they will raise my monthly escrow contribution.

You encouraged me to contact regulatory agencies. I sent written requests of assistance to:

Freddie Mac, which is the trustee of the mortgage; the Ohio Division of Financial Institutions’ complaint department, where the servicer’s office is located, and the California Department of Financial Institutions’ consumer complaints office, where the servicer is licensed and does business.

It is too soon for any replies from these agencies, but I just wanted to keep you in the loop. I suspect there may be a wonderful column in the making for you, fully documented as to how a major financial institution can screw something up, take money from an escrow account, ignore all protestations from their “valued customer,” and then (I am afraid) increase the monthly escrow payment to cover the shortfall. I have this fully documented.

Let me know if you would like me to follow up with you as this saga continues. —H.B.

RESPONSE: Yes, by all means, let me know how things turn out, good or bad. You are not alone in this battle. What’s happened to you happens to too many others, and I’m sure my readers — and your fellow combatants — would love to follow along.

As far as the lack of a customer service phone number is concerned, that is absolutely absurd. Try finding the number on the web. There must be a toll-free number. There must. I believe it’s required by law.

Also, at this point, a letter (not an e-mail) to the president of the servicer in Ohio, with copies to all the appropriate authorities, may also be in order. Make sure that the glorious leader of said company knows you also are contacting regulators. And hopefully, you are keeping copies of all your attempted correspondence. That may come in handy at a later date.

Good luck!

Nationally syndicated columnist Lew Sichelman has been covering the housing market for more than 40 years. MarketWatch readers are encouraged to send their real estate questions to him at lsichelman@aol.com . Answers will be presented in this column every Friday. However, because of the volume of e-mail he receives, he cannot answer every reader’s query. 

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