Q: My mother is about to turn 75. She took out a home equity loan years ago for about $33,000. At some point, the loan was converted by the bank from a home equity loan to a personal loan. Currently, she still has an approximate balance of $17,000.
The problem is that Mom is on an extremely fixed income, and is struggling to make the $366 monthly payment. We have talked with the bank several times in an effort to modify the loan, only to be told over and over that there’s nothing they can do.
We are on the verge of just having her stop making the payment, and force the bank to take some sort of action. I highly doubt they would want the bad press of forcing a 75-year old woman out of her home.
That leads to my next question. Her home was used as collateral for the original home equity loan. Now that the loan is considered a personal loan, would her home still be considered security for the loan? If she were to default on the loan, could they take her home?
Who should she contact for help?
A: Your mother’s situation is interesting. You should check to see if the prior mortgage that your mom gave to the bank was released. While you may think the loan is a personal loan, the loan may be an equity loan of some sort.
If your mother has a personal loan with the bank, then no, her house wouldn’t be collateral. But if the house is still collateral for the loan and your mother stops making her payments, then the bank would be able to step in and foreclose on the property. But even with a personal loan, the bank can still sue your mom, obtain a judgment against her and then seek to enforce the judgment by going after the home.
If the bank is able to foreclose on the home and if your mom only owes $17,000, and the property is worth $100,000 (let’s say), then after selling the house and subtracting all kinds of fees, etc., the bank would hand your mother a check for probably around $50,000. That scenario leaves a lot of money on the table.
This is not the way you want this to go – and don’t even think about tempting the bank or relying on some sort of bad publicity threat to keep the lender from making a move. It may not work. There are far worse cases and the emotional play doesn’t seem to be working.
One possibility is for your mom to take out another home equity line of credit for $17,000, pay off the other loan and enjoy a low interest rate that should cut her payments. There is some risk associated with this move since the interest rate will fluctuate. But, it should help your mom’s payments.
If your mom can’t qualify for a home equity line of credit, you should think about whether you can work with her and help her make these payments, or even help her pay off the loan entirely. It’s far better to loan her the $17,000 if you can swing it and have her make payments back to you. If she dies with some of the loan outstanding, your agreement (in writing, please) can be to have the estate repay the loan with the proceeds from the sale of the property.
A final thought is to have your mom do a reverse mortgage, which would then pay off the $17,000 and provide her perhaps with extra equity so that she can live more comfortably. While reverse mortgages are expensive, they’re designed to help out seniors who are “house rich, cash poor.” The loans have recently become more transparent and slightly less expensive and your mother will not have to repay the loan at all until the home is sold or she moves out of it permanently.
I think you and your mom should have a heart to heart talk and help her figure out her next, best step. But remember, to review the documents on her loan and you may want to seek the advice from a real estate attorney.
© Ilyce R. Glink. All rights reserved. www.ThinkGlink.com
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