We Are Living on Social Security and Now Responsible for Our Granddaughter

Question:

Dear Steve,

My husband is 76, and I am 72. When both of us worked, we could pay our bills, but now we find ourselves 90,000 in debt and only Social Security as income. In addition, we have just recently had to take custody of our 6-year-old granddaughter, which increased expenses. My husband has health problems, and we do not know where to turn.

We do not have a mortgage on our home but do not want to lose it at our age. However, no money is left after medicine, utilities, insurance, and groceries. We are insolvent, so what can we do?

All debt is unsecured. Can they sue as we are judgment proof?

Rose

Answer:

Dear Rose,

The biggest item that jumped out at me was the statement about the home owned free and clear. That would be an attractive asset for any creditor to go after if you default on debt and were sued.

I asked Attorney Eric Olsen with HELPS to chime in.

Olsen said “If you have a free and clear home and minimal Social Security income then you may want to look at a reverse mortgage. There is a lot of misinformation about reverse mortgages. But they can be a godsend for many seniors. A reverse would provide either a line of credit you can draw on or an extra sum each month to help with raising the granddaughter. You still own the home and can protect it for your heirs. Yes, your Social Security is protected from debt collectors even if you are sued. It is not the practice of judgment creditors to attempt to take a person’s home even if there is equity above the amount protected by the state homestead exemption where the person lives.”

Eric is correct, a reverse mortgage might be worth considering. However, there are a lot of traps when taking out a reverse mortgage.

The United State Housing and Urban Development agency (HUD) provides free reverse mortgage counseling for seniors. You can find a local free counselor here. It is worth calling and seeking specific advice.

Questions to Ask The Housing Counselor

  • How does a reverse mortgage loan work?
  • How is a reverse mortgage loan different from a traditional mortgage?
  • What are the upfront costs and fees in taking out a reverse mortgage loan?
  • What will be the ongoing costs and fees if I have a reverse mortgage loan?
  • How will a reverse mortgage loan affect my spouse, or other people living with me?
  • What happens if I want to sell my home once I have a reverse mortgage loan?
  • What happens to my home when I pass away?
  • What happens if I have to move to a nursing home?
  • How do I receive the money from my loan proceeds? Would it be better to take out the money as a line of credit, in monthly installments, or in a lump sum?
  • If I already have a mortgage on my house, how is that affected by a reverse mortgage?
  • What are my ongoing responsibilities once I have a reverse mortgage loan?
  • What other options should I consider other than a reverse mortgage loan?

Exploring if a reverse mortgage might be good for you could help resolve this situation.

A reverse mortgage is a mortgage loan, usually secured by a residential property, that enables the borrower to access the unencumbered value of the property.

The loans are typically promoted to older homeowners and typically do not require monthly mortgage payments. Borrowers are still responsible for property taxes or homeowner’s insurance.

Reverse mortgages allow older people to access the home equity they have built up in their homes now, and defer payment of the loan until they die, sell, or move out of the home.

Because there are no required mortgage payments on a reverse mortgage, the interest is added to the loan balance each month. The rising loan balance can eventually grow to exceed the value of the home, particularly in times of declining home values or if the borrower continues to live in the home for many years.

However, the borrower (or the borrower’s estate) is generally not required to repay any additional loan balance in excess of the value of the home. – Source

The Consumer Financial Protection Bureau has a lot of information available about reverse mortgages.

You should be applauded for taking care of your granddaughter. That is awesome.

Sincerely,

You are not alone. I’m here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don’t give up.

Damon Day - Pro Debt Coach