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Reverse Mortgage and Unsecured Debts

Must I pay off personal judgments, not against the property, in order to get a reverse mortgage?

Must I pay off personal judgments, not against the property, in order to get a reverse mortgage?

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Highlights

  • Unsecured loans do not need to pay off completely to secure a reverse mortgage loan.
  • Any liens secured against the property must be paid off first and can be paid off with the reverse mortgage proceeds.

Generally speaking, judgments, even judgments for unsecured debts, create a lien on any real property you own, such as a home or a piece of land. Personal debts, such as credit cards, are not secured on your property, meaning an unsecured creditor cannot foreclose on your home due to failure to make your credit card payments. However, if a creditor sues you and obtains a judgment against you through your local courts, the creditor can place a lien on your property, meaning that you will be required to repay the debts before you sell or refinance the home. I also believe that most reverse mortgage lenders will require you to pay off any liens on your home before you can proceed with a reverse mortgage. Luckily, many lenders will allow you to use a portion of the proceeds of your reverse mortgage to repay any liens on your property, as long as the liens do not exceed the amount of the reverse mortgage for which you qualify. For example, if you have $15,000 in liens on your home, but you qualify for a $100,000 reverse mortgage, $15,000 of the loan will pay your liens, leaving you with $85,000 as the proceeds of the loan.

Sometimes a judgment is entered against a debtor but the creditor fails to record the judgment with the county recorder's office, which may be why some judgments against you have not appeared as liens against your property on the title report. The problem is that these judgments could be recorded at any time, creating a lien on the property after the reverse mortgage has closed. You are generally required to disclose any potential claims against the property during the loan underwriting process, and failing to disclose these judgments could cause serious problems between you and your reverse mortgage lender in the future. I highly encourage you to disclose these judgments to any potential lender; the lender will then decide if the judgments must be paid as part of the reverse mortgage loan. As a practical matter, I expect that almost all lenders will require you to pay these judgments out of the proceeds of the loan to prevent any potential problems that these judgments may cause in the future. I hope that these judgments will not prevent you from obtaining a reverse mortgage to help you fund your retirement.

Before you begin your search for a reverse mortgage loan that meets your needs, I encourage you to fully educate yourself about reverse mortgages, their purpose, and the regulations governing them. The Internet is a great source of information about reverse mortgages; two great places to start your research are the web site of the National Reverse Mortgage Lenders Association (http://www.reversemortgage.org) and the Federal Department of Housing and Urban Development's reverse mortgage site (http://www.hud.gov/buying/rvrsmort.cfm). Also, I invite you to visit the Bills.com Reverse Mortgage Information page at http://www.bills.com/reversemortgage/ I hope that the information I have provided helps you Find. Learn. Save.

Best,

Bill

www.Bills.com

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