Reverse Mortgage Foreclosure Protection

In Legislation, Real Estate by Richard Bianco

Wait a minute. I thought a reverse mortgage was an arrangement where the lender pays the owner every month. How can there be a risk of foreclosure where the owner is receiving and not paying a monthly mortgage payment?

The answer is simple. In any mortgage, an owner has obligations in addition to the monthly payment, and a Reverse Mortgage is no exception. In nearly all cases, a homeowner is required to pay their property taxes (when there is not an escrow) and their utility bills. This is the case because if you don’t pay your taxes or water/sewer charges, the District or DC Water can place a lien on your home that is afforded a higher priority than the mortgage. The mortgage company does not want to be in a position where it may potentially lose its priority to a governmental lien. So, frequently, the mortgage company will protect its interest by paying off the government or water charges and seek reimbursement from the homeowner. When the homeowner doesn’t, or can’t pay, the lender begins foreclosure proceedings.

To address a growing problem for typically elderly homeowners, on fixed incomes, who can’t meet their property tax obligations and/or pay their water bills, the DC Council introduced the Reverse Mortgage Foreclosure Prevention Act of 2017 (B-22-0505). The Act provides for an interest-free loan program administered by the Department of Housing and Community Development (DHCD), which would provide up to $50,000 for owners to meet their financial obligations under reverse mortgages. The measure is scheduled for public hearings on October 27, 2017, and may be considered by the Council thereafter.