Loans Secured by Private Mortgages
Elderly clients sometimes inquire about the effect a loan has on Medicaid. Often, the children are subsidizing their parents' expenses, because they have exhausted their life savings on their own care, but there is nothing in writing to this effect. Medicaid will only recognize a loan if it is in writing. A loan can be documented by a simple promissory note i.e. where the debtor acknowledges the monies lent by a third party. The repayment of this debt is not considered a gift by Medicaid as there is an underlying debt. The promissory note can also be secured by a mortgage against that person’s residence.
For older people trying to stay in their home, obtaining a mortgage may be an insurmountable challenge, as they have neither the income to support the repayment of the loan nor additional assets to qualify. Reverse home equity mortgages by commercial lending authorities can be applied for if the person is 62 years of age or older. However, the costs are significant in obtaining this kind of financing. In addition, the home must be sold when it is vacated or the homeowner dies.
A private mortgage by a family member may be a solution to the typical problems encountered with reverse home equity mortgages. It allows a documented loan to be secured against real estate owned by the individual. Unlike a reverse home equity loan, if this is a private loan transaction, there is no specific requirement as to age of the homeowner. In addition, the repayment provisions can be less stringent than on a typical reverse home equity loan. Additionally, the mortgage can be against any property owned, not just the home the individual resides in. This is beneficial where there is a vacation home or an income producing property that the individual wants to keep avoiding capital gains taxes or obtain a stepped-up basis upon death.
Looking into alternative ways to finance an elderly person remaining in their home may be advantageous to everyone involved. The elderly parent or loved one stays where they are most comfortable. The children feel like they are helping out. Assets may be e preserved long term. It can be a worthwhile endeavor for all involved.
If you are interested in more information about private loans and reverse home equity mortgages, you should contact an experienced estate planning attorney. The attorneys at Weiss, Tom & Trapanese, LLC can assist you in developing a viable plan to keep your home with the assistance of family loans.