Published on:

How Does a Reverse Mortgage Affect My Will or Trust?

Living in southern California gets more expensive every year. For many elderly San Diego residents on a fixed income, just paying monthly bills can be a struggle. This is one reason “reverse mortgages” have become popular in recent years.

How Reverse Mortgages Work

Most of us have taken out a home mortgage loan at some point in our lives. The typical mortgage is a 30-year loan secured by the property being purchased. Each month the borrower must make fixed payments towards the mortgage’s principal and interest.

A reverse mortgage differs in that the lender actually makes monthly payments to the borrower. The loan is still secured by the borrower’s property, but no payments are due until the borrower dies or moves out of the house. This allows the borrower to receive a steady stream of cash each month.

Of course, the loan must be repaid eventually. Usually, the deceased borrower’s estate has to sell the house in order to pay the balance due on the reverse mortgage. This may come as quite a surprise to the decedent’s heirs, especially if they expected to inherit the house free and clear.

It is therefore always a good idea to advise family member about any reverse mortgage you have or plan to take out. You should also discuss the matter with your estate planning attorney so he can advise you on how this loan may affect your will or trust.

Wife Surprised to Learn About Husband’s Reverse Mortgage

In some cases a reverse mortgage may be more than unpleasant surprise to family members. It may spark litigation. For example, a California appeals court recently dealt with a case where a wife accused her deceased husband of fraudulently obtaining a reverse mortgage on their residence.

The house itself was held in a revocable living trust created by the husband. He was the sole grantor and trustee during his lifetime, and the house had been his separate property. According to the wife, the husband promised she would have a “life estate,” i.e. the right to continue living in the house after his death.

But the husband, acting as trustee, obtained a reverse mortgage on the property. He also amended the trust to eliminate the life estate. The wife claims the husband fraudulently obtained the reverse mortgage by forging her signature on several documents.

After the husband’s death, the wife learned about his actions. She, together with her daughter, were the successor trustees of his trust, and in that capacity they sued a number of parties connected with the reverse mortgage. The California Fourth District Appellate Court, in an unpublished opinion largely rejected the wife and daughter’s claims, noting that as trustees they had no valid claim against the people responsible for the reverse mortgage itself. The husband alone committed the fraud.

Get Advice From a San Diego Estate Planning Lawyer

This is an extreme situation. Most reverse mortgages do not involve forgery or fraud. But it is not uncommon for family members to be unaware of a legitimate reverse mortgage and its impact on their inheritance rights. If you have questions on how a reverse mortgage affects your will or trust, contact the Law Office of Scott C. Soady today.

Contact Information