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Ask the Expert: Reverse mortgages and creditor claims against a home

I'm considering getting a reverse mortgage. I understand that this mortgage must be repaid when I move or die, but that neither I nor my heirs can owe more than the house is worth. I understand the bank cannot force me out of my house as long as my tax and insurance payments are up to date. My question: While a reverse mortgage is in place, can anyone place a lien against my house (e.g., for unpaid health bills) and force me to sell?

Subsequent creditors that obtained a judgment and put a lien on the house would probably wait for a sale, not force one, because their claim on the proceeds would be secondary to the bank's. The only creditor ahead of a mortgage-holder is the property tax collector.

(That's why the reverse mortgage lender can force you to sell the house if you stop making tax and insurance payments. Property taxes have first claim on sale proceeds; and insurance protects the bank's collateral.)

For readers who don't know, reverse mortgages are only available to homeowners age 62 or older. The amount you can borrow depends on your age and the value of your house. Part of the loan must repay any existing mortgage. You can take the rest as lifetime monthly income, a lump sum or a line of credit. No repayment is due until you move, die or sell the house. Then you (or your heirs) must repay the loan plus accrued interest and fees. If the debt exceeds the market value of the house, federal insurance pays the difference. (The cost of this insurance is included in the loan.)

The bottom line

You're legally required to speak with a HUD-certified counselor when applying for a reverse mortgage, to ensure you understand the costs, options and risks.

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