Q: Our family has a vacation home that we own free and clear. The property is held in a trust for all of us.
Due to the current local market conditions, we haven’t been generating any income from the trust. But the house needs some repairs that none of us can afford to make.
We thought about getting a home equity line of credit, but then someone told us that one of us would have to be liable for the payment each month. Unfortunately, none of the 15 family members who own the house wants to be the one who signs for the home equity loan.
But we had another idea. Since we own the house free and clear, could we obtain a reverse mortgage? Since the amount of the mortgage would be repaid when we sell the property, no one would be financially liable?
Will this work? There has to be a way that we can utilize the equity in the house to do these necessary major repairs.
A: The short answer, unfortunately, isn’t one you’ll want to hear: I don’t think a reverse mortgage is going to work for you.
To qualify for a reverse mortgage, the house has to be the primary residence of the homeowners. And, at least one of the owners of the property has to be 62 years of age or older.
From what you have described, it sounds to me like you and your 15 family members own the property collectively and you use it as a vacation home as well as a rental. The way things stand today, the owner of your type of property may not qualify for a reverse mortgage.
I’m more troubled by the idea that no one wants to take financial responsibility for the home equity loan. While not all 15 people need to sign on to the loan to make it work, the trustee for the trust that owns the property should be able to take financial responsibility. As long as the value of the home is assured, and the loan is secured by the property, it would be repaid monthly like any other home equity loan. If the trustee fails to pay the loan as required, the property could or would be sold to satisfy the debt.
If that’s not possible, and if no one is willing to step forward and assume financial responsibility for the home, then the family should consider selling it (if the trust will permit a sale).
If you let the home fall into disrepair, it will be worth less and less, and you’ll have fewer opportunities to rent it. That’s a bad cycle to fall into. And, it’s always a shame to take what should be an appreciating asset and watch it crumble.
June 11, 2004