Senior Citizens and Mortgage Options

Not long ago, a senior, Frank, called me about his home. He explained, "I have been making my mortgage payments from my IRA. My social security is not enough to maintain the mortgage payment and leave me enough to live." He further explained that he had minimal equity in his home. His IRA would not last forever. He was worried and didn't know what to do.

Sometimes senior citizens or legally disabled persons will have house payments they cannot afford. Perhaps retirement, disaiblity or loss of job has created an inability to make the payment. Maybe a spouse has passed away, reducing the household income. Worrying about a house payment can be extremely stressful, but there are options.

Senior citizens over age 62 may want to consider a reverse mortgage, if they have more than 55 percent equity in the home. This allows the senior to live in the home wihtout a house payment until he or she passes away. If there is sufficient equity, there may also be an opportunity to receive a monthly payment. Reverse mortgages allow senior citizens to keep and remain in homes they could otherwise not afford. Upon death, the senior's heirs will have an opportunity to sell the home. If there is equity after the reverse mortgage is paid off, heirs can keep the funds. If there is no equity or the home cannot sell for an amount sufficient to pay off the reverse mortgage, heirs on not responsible for any outstanding balance.

Many senior citizens own a home that is big or too much work to maintain. If equity is available, they may wish to consider sellign the home. A realtor can obtain a market analysis. If a sale would provide sufficient money after a realtors commission (usually six percent), selling the home and obtaining less expensive housing might be a good option.

What if there is little or no equity in the home and the house payments are not affordable? A senior citizen can always stop making the house payments. When payments are not made, there will eventually be a foreclsoure. Foreclosure is a legal process a lender must go through, to get the home back. It is generally a slow process. A person does not need to move when they stop making house payments. A foreclosure must occur first. Most mortgage lenders prefer persons to occupy the home while it is going through foreclosure. Staying in a home as long as possible, before foreclosure, allows for saving funds for the future move.

Will money be owed after the home is foreclosed? Some states allow for a judgment for excess money owed after aforeclosure sale,called a deficiency. This is rarely pursued by mortgage lenders. Furthermore, seniors social security and retirement income is protected by federal law- it can't be taken from seniors.

Senior citizens can also contact a realtor and attempt a "short sale". This is when a mortgage lender agrees to accept a lesser sum when the home is sold. A lender can also be contacted about accepting a deed in lieu of foreclosure, if staying in the home is not a prioirty.

Mortgage assistance programs are offered by some states. Google mortgage assistance programs and your state, to determine if there are programs where you live.

What about George? He realized that once his IRA was gone, he wouldn't have much to show for it. The house was too big and didn't have enough equity to be a worthwhile investment. He needed his retirement for his future needs. He decided to let the house go back to the bank and find more affordable housing.

Eric Olsen, Executive Director HELPS nonprofit law firm.