Many of us worry about running out of money in retirement. An insufficient pension, an unanticipated financial emergency, or the passing of a breadwinner spouse might all come at once to make living extremely difficult and drive an elderly, already vulnerable person into poverty.
Reverse mortgages are one possible way for elderly property owners to access their home equity. This kind of loan may help with cash flow problems and often doesn’t need to be repaid until the borrower vacates the property, sells it, or passes away. However, when the homeowner is no longer of sound mind, it is challenging to access and control this procedure.
- In order to qualify for a reverse mortgage, a homeowner must have power of attorney (POA) in one of two situations: either they must be mentally incompetent or they must desire someone else to manage their money.
- The use of POAs on reverse mortgages is permitted by federal law, but lenders will need extra proof just to be cautious.
- A durable power of attorney (POA) that was signed while the homeowner was competent and authorizes the management of real estate transactions is required by lenders.
- A supporting letter from the person’s doctor generally serves as evidence that the POA was signed while the homeowner was mentally competent.
Using Power of Attorney (POA) for a Reverse Mortgage
Nobody wants to consider the possibility that they could lose the ability to manage their own affairs one day. However, it is possible, and it typically helps to embrace this unfortunate reality of life before it’s too late for your financial well-being and the welfare of your next of kin.
A power of attorney allows (POS).Should it be determined that you are no longer mentally competent, your kid or another person you trust may instantly take over and handle your funds. In order to assure that you will have enough money to live a stress-free retirement without selling your property, this may include looking into reverse mortgages.
When requesting a reverse mortgage, POA may be required in one of two situations:
- The householder is unable to think clearly.
- Although in good mental health, the homeowner no longer wants to worry about handling their money and is content for the designated agent to take care of this moving forward.
Prior to or at the time of completing the reverse mortgage, the POA must be filed with the county where the homeowner resides. The document must be the original and not a copy.
Because POAs have been abused in the past and might possibly be fraudulent, lenders are typically wary of them. A POA won’t be approved until the following conditions are satisfied, even though federal law allows them to be used on an older person’s behalf for a home equity conversion mortgage (HECM), the most popular kind of reverse mortgage.
- The POA paperwork is sent to the lender by the agent who has been given authority to act on behalf of the homeowner.
- The POA must be “durable,” which means it must continue to be effective even if the homeowner becomes unable.
- The POA expressly gives the agent the power to handle real estate transactions.
- The agent provides two different forms of identification along with documentation demonstrating the homeowner’s capacity at the time the POA was signed.
The only other option for obtaining a reverse mortgage on behalf of an elderly homeowner if the POA is rejected is to apply for and be appointed the person’s conservator in court.
It is unclear from the U.S. Department of Housing and Urban Development (HUD) how to demonstrate that the homeowner gave POA to the agent prior to becoming incapacitated. The majority of lenders concur, however, that the only way to demonstrate this is to provide a letter from the patient’s attending physician stating that they are no longer capable of handling such transactions and that they reached this conclusion after the POA was executed, witnessed, and notarized.
The homeowner’s medical records, which are accessible to the current doctor, may not contain a date for the point at which full competency was lost, which could make it difficult to comply with this requirement if the doctor from that time can no longer be reached due to his or her passing or retirement. If these specific circumstances come to pass, the lender may decide not to accept the POA and want a court-ordered conservatorship in order to go through with the reverse mortgage transaction.
POA vs. Court-Ordered Conservatorship
Without evidence that the homeowner was of sound mind when the POA was signed, a reverse mortgage lender will not accept the document. It is not feasible to get a POA unless the principle is fully aware of what is happening since the paperwork must be notarized.
Yes, dealing with this kind of inconsistency may be frustrating. But keep in mind that lenders put up these hurdles to safeguard the interests of their clients, and that if you don’t provide them the paperwork they need, you’ll probably have to go to court to get conservatorship.
If you can, stay away from this route. The same outcomes may be obtained via a court-appointed conservatorship or guardianship, but it is a time-consuming procedure that can be costly and intrusive.
Be Careful Whom You Choose
Although a POA may reduce stress significantly, it should not be carried out hurriedly. Before taking any action, carefully consider who you want to provide your POA to. A qualified practitioner who specializes in elder law or estate preparation might serve as your agent. In any situation, you must have faith in this individual and know they will always act in your best interests.
Unfortunately, not everyone acts decently when money is involved. Numerous instances of financial elder abuse have occurred, such as when children or other individuals tasked with managing an elderly person’s affairs obtained reverse mortgages and subsequently transferred all the income into their own bank accounts.
Does Your House Have to Be Paid Off to Get a Reverse Mortgage?
You may essentially borrow a portion of your home value with a reverse mortgage as tax-free income. In most cases, you must either be the only owner of the home or have paid off a substantial portion of the mortgage. As a general rule, your house must have at least 50% equity.
Is the Person With Power of Attorney (POA) Responsible for the Reverse Mortgage?
Yes. This does not imply, however, that if the loan is not paid back, creditors will begin sending debt collectors their way. Most reverse mortgages are non-recourse loans, so the lender may confiscate the property without seeking further repayment from the borrower or the POA.
Can the Person With POA Withdraw Funds From the Reverse Mortgage?
Yes. Money may be withdrawn from the reverse mortgage on behalf of the disabled homeowner by a person having a POA that has been granted.
The Bottom Line
POAs are a delicate subject. On the one hand, it makes sense for everyone to choose someone to manage their affairs if they become mentally incapacitated in order to achieve the best outcomes for them and, ultimately, their heirs. On the other hand, forcing others to follow this course may be risky since it might provide power to those who are unable to set aside their own interests and ruin other people’s fortunes.
It is vital to have a trusted someone in your life who will handle your funds and adhere to your preferences. If that’s the case, it could be a good idea to get the appropriate POA paperwork prepared by a qualified attorney before it’s perhaps too late.
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