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Is a Reverse Mortgage an Alternative to Bankruptcy?



By:Mike Cibik

Reverse mortgages can be a good option for older folks with debt problems who are “asset rich and cash poor.” A reverse mortgage is a mortgage in which a person, aged 62 or older, uses the equity in her home for a loan. The difference between a normal mortgage and a reverse mortgage is that (1) the borrower has no personal liability for the loan and (2) the loan is not due until the borrower dies. After death, the lender simply forecloses on the home, and there is no deficiency balance assessed against the probate estate of the borrower. If the borrower’s devisees (those named in his Will) or heirs (those who would take if he doesn’t have a Will) desire to retain the home, they may pay the balance due on the reverse mortgage. In most cases, that simply means that the children have the right to surrender the home or to pay off the mortgage balance owing.


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