Can proceeds from a reverse mortgage be garnished, such as to pay off a debt?
Can proceeds from a reverse mortgage be garnished, such as to pay off a debt?
Wage garnishment is customarily defined as an employer diverting part of a debtor’s wages to pay a creditor for a debt.
A reverse mortgage is a line of credit on which regular withdrawals are made. Since it is a line of credit secured by the debtor’s real property, not a debt owed or property held by a third party, and there is no employer involved, I do not see a way for a creditor to use wage garnishment law to intercept payments from the reverse mortgage lender. It would be like applying a wage garnishment to the available credit line on your credit card. Therefore, I would argue monthly payouts from the reverse mortgage cannot be garnished.
Some reverse mortgages are paid out in lump sums, though, rather than as credit lines, so it would be easier to levy these funds if they are deposited into a bank account. If reverse mortgage payments are deposited into a bank account each month, they do not have any specific exemption and could be levied along with any other non-exempt funds in a bank account belonging to a judgment debtor.
I hasten to add I cannot find case law to support my opinion. I cannot find any case law where a creditor has garnished a disbursement from a reverse mortgage successfully, either.
This does not mean no creditor has ever garnished a reverse mortgage disbursement. Therefore, I urge you to consult with an attorney in your state who has experience in consumer law. He or she will research this issue in your jurisdiction and give you a more accurate answer.
To read more about collections, see my answer to another reader who needed Collections Advice.
I hope that the information I have provided helps you Find. Learn. Save.
Best,
Bill
www.bills.com
Debt statistics
Mortgages, credit cards, student loans, personal loans, and auto loans are common types of debts. According to the NY Federal Reserve total household debt as of Q4 2023 was $17.503 trillion. Housing debt totaled $12.612 trillion and non-housing debt was $4.891 trillion.
According to data gathered by Urban.org from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1,739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 8% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.
Collection and delinquency rates vary by state. For example, in Indiana, 17% have student loan debt. Of those holding student loan debt, 9% are in default. Auto/retail loan delinquency rate is 4%.
To maintain an excellent credit score it is vital to make timely payments. However, there are many circumstances that lead to late payments or debt in collections. The good news is that there are a lot of ways to deal with debt including debt consolidation and debt relief solutions.
