Senior citizens who own their homes outright but lack sufficient income to meet their immediate financial needs may want to consider a reverse mortgage. A reverse mortgage enables you to convert equity in your home into spendable income without having to move or sell your home.
The amount you receive from a reverse mortgage is based on the appraised value of the property. The amount of the monthly payment you receive depends on your age and life expectancy and the term of the loan.
Unlike a conventional mortgage, your income has no bearing on eligibility for a reverse mortgage. With a reverse mortgage, no repayment is required to the lender until you sell the home or no longer use it for a primary residence. Then, you or your estate must repay the loan with interest and any applicable finance charges. Any proceeds beyond what is owed belong to you or your estate.
The commitment to a reverse mortgage should not be made without professional advice aimed at weighing all of the legal ramifications of the decision. For example, if you receive, or expect to receive, needs-based benefits, it will be important to understand whether and how receiving the proceeds from a reverse mortgage may affect eligibility for a range of benefits, such as Social Security, food stamps, VA benefits, state welfare programs, energy assistance, and property tax postponement for senior citizens.
Another important consequence of a reverse mortgage is its future effects on your heirs. The flow of cash without an immediate need for repayment should not obscure the fact that a reverse mortgage, like any loan, has a day of reckoning. A substantial mortgage on your home could eventually exhaust what originally was contemplated as the primary asset in your estate. This remains your choice legally, but involvement of family members in the decisionmaking process is prudent. This will allow you and your family to consider all alternatives to attain the same goals and to reduce the likelihood that an heir might later challenge the transaction.
Earlier this year, the federal Department of Housing and Urban Development (HUD) issued a final rule implementing measures to tighten limits on fees charged for reverse mortgages under HUD's Home Equity Conversion Mortgage Program. The rule is intended to protect homeowners in reverse mortgage loan programs from paying excessive fees to third parties for services that are of little or no value. The rule requires that a reverse mortgage be executed by a borrower who has received complete disclosure of all costs, including specifications as to which charges are required to obtain the reverse mortgage and which are not. The reverse mortgage also must be made with HUD-approved restrictions that will prevent the borrower from paying for any unnecessary or excessive costs.
HOMEOWNERS INSURANCE COVERAGE
As with any type of insurance, the only way for a policyholder to know with some certainty what is and what is not covered by homeowners insurance is to examine closely all of the language in the policy. With that important caveat, it is possible to make some generalizations about coverage under a typical homeowners policy.
Direct losses due to lightning, tornadoes, wind storms, and hail are usually covered. In other words, with the notable exceptions of floods and earthquakes, policies cover most natural disasters, or "Acts of God" as they are sometimes called. Commonly covered man-made losses include vandalism and theft. Even when there is protection against these perils, however, the insured person should be certain that any dollar limits on the amount of coverage for specific items correspond to the value of those items.
For flood insurance, including protection against mudslides, a property owner will have to get separate flood insurance provided by the federal government. If property is flooded because of a broken plumbing or heating system in a house, there generally is coverage under a standard homeowners policy. Seepage of water from the ground into a basement, however, is considered a maintenance issue and is excluded from most policies.
Stolen personal property is covered, even if it was located far from home at the time of the theft. Basic coverage only entitles the policyholder to the current value of the property. For additional money, however, a replacement cost endorsement for personal property will take care of the full replacement cost, less any deductible.
Apprehension about being sued is as big an issue for many homeowners as repairing or replacing their own property. The typical policy will pay for damages caused by a homeowner's negligence, as well as the legal costs of defending the homeowner. If the standard $100,000 limit on liability protection is not enough to make the policyholder comfortable, a higher limit can be purchased.
Even the most carefully drafted homeowners policy can leave room for different interpretations, resulting in litigation. For example, Bonnie hired a worker to do some ordinary maintenance on her home. When he jumped from a ladder onto the side porch of her home some support beams gave way on impact. Further inspection revealed extensive, although previously hidden, carpenter ant damage to the side porch, a front porch, and a garage.
Bonnie's insurer denied coverage, except for damage in the area that had collapsed under the worker. The policy covered losses from hidden insects only if they involved the "collapse" of all or part of a structure. Bonnie argued that the term "collapse" was ambiguous enough that it should extend to any substantial impairment of a building's structural integrity. The court disagreed, reasoning that "[t]here are no degrees of collapse." The policy covered only a collapse, not an "imminent" collapse.
A federal appellate court has struck down a permit requirement for wetlands development that had been a major headache for many developers, including small landowners. The case has added significance because the court's injunction against the regulation was expressly given nationwide application.
Under the Clean Water Act, the United States Army Corps of Engineers has the authority to require and issue permits for the "discharge" of dredged or fill materials into navigable waters at specified disposal sites. For purposes of the Act, "navigable waters" has been interpreted to include wetlands. "Wetlands," in turn, is basically defined to include areas that normally have enough surface or ground water to support vegetation suited to such conditions.
Prior to 1993, the Corps operated under a regulation that required permits for the addition of dredged material into wetlands, but which expressly excluded de minimis, incidental soil movement that happens during normal earthmoving operations. In 1993, as part of a settlement of a case in which a developer sought to drain and clear 700 acres of wetlands, the Corps changed its regulation by dropping the de minimis exception and bringing within the permit process "any redeposit" of dredged material. A redeposit occurs whenever material moved from water is returned to it, including "fallback" of material that is virtually unavoidable for any excavation or dredging done in wetlands.
What may have seemed like minor amendments to the rule at the time had far-reaching consequences. The combination of a broad definition of wetlands and the addition of incidental fallback to regulated conduct meant that a host of new activities were subject to the expensive and time-consuming process of getting the Corps' stamp of approval. Suddenly, federal permits were required for some previously unregulated activities, such as digging wells, removing trees and vegetation, creating drainage ditches, grading roads, and digging foundations.
Trade associations whose members engage in dredging and excavation were able to topple the regulation, commonly known as the "Tulloch Rule," on the basis of an elementary principle of law. No regulation issued by an administrative body can exceed the reach of the statute under which it was created.
When the Corps adopted the Tulloch Rule, it outran its authority derived from Congress in the Clean Water Act. The Act gave the Corps permitting authority over the "discharge" of material into wetlands, such as occurs when a landowner fills in a marsh to create a residential lot. In the court's view, no reasonable construction of "discharge" could include incidental fallback from earthmoving activities. In that situation there is, in fact, a net withdrawal of material from wetlands, not an addition.
FAIR HOUSING ACT
The federal Fair Housing Act prohibits discrimination in housing because of race or color, national origin, religion, sex, handicap, or familial status. Familial status refers to the discriminatory treatment of pregnant women, or of parents or legal custodians of children under the age of 18. The Act applies to most kinds of housing, but there are exemptions for owner-occupied buildings with no more than four units, single-family housing sold or rented without a broker, and housing operated by private organizations that limit occupancy to members.
The Act prohibits a broad range of discriminatory conduct. Regarding the sale and rental of housing, for example, no one can, on the basis of any of the protected classifications: refuse to rent or sell housing; refuse to negotiate for housing; set different terms or conditions for obtaining housing; provide different housing services or facilities; or falsely deny that housing is available for inspection, sale, or rental. It is also illegal to threaten, coerce, intimidate, or interfere with anyone exercising a fair housing right or assisting others to exercise such rights. Advertising for renters or buyers (or other statements) may not indicate a limitation or a preference based on a protected category, even as to single-family and owner-occupied housing that is otherwise exempt.
A person claiming to have been victimized by discrimination prohibited by the Fair Housing Act can file an administrative complaint with the Department of Housing and Urban Development. If the matter is not resolved by that means, it will be heard in an administrative hearing or, at the option of either side, in federal district court. Or, the complaining party may go straight into federal or state court at his or her own expense. Either procedural track can lead to an award of damages, injunctive relief, and recovery of attorney's fees and costs if violations of the Act are proven.
A recent decision by an administrative law judge illustrates the breadth of coverage under the Act. Gayle, a single mother of a 12-year-old son who lived with her, responded to an advertisement for renting an apartment that was one of two units in a duplex. The owners occupied the other unit. While describing the apartment to Gayle over the phone, one of the owners stated, "This apartment has a pool, so we don't want children or pets." Gayle responded that, given her son's age, the pool was not dangerous. The owners stood their ground.
Since the owners occupied one-half of the duplex, they were free to discriminate with impunity in renting the apartment. They remained subject, however, to the Act's prohibition on making a statement with respect to rental of a dwelling that indicated any preference, limitation, or discrimination based on familial status.
According to the judge, the violated section of the Act gives persons seeking housing the right to inquire about its availability without having to endure the insult of discriminatory statements. In her view, the owners' comment rejecting anyone with children because of the pool was such a statement. The statement expressed a blanket ban on renting to a family with a child or children, even if it stemmed from a concern for the safety of children. The judge stated that the decision on whether a dwelling poses unacceptable risks to a child is for the prospective tenant/parent to make. Gayle and her son were awarded damages for emotional distress, and a civil penalty was assessed against the apartment owners.