Equal Housing Lender
Fairway NMLS #2289
Ken Powell NMLS #2656628
Whether or not you recommend them, reverse mortgages will appear in your files: in estates with a HECM on the house, in divorces where one spouse wants to stay, in Medicaid planning, and in foreclosure workouts. Ken is a Fairway-certified reverse mortgage loan officer in Hughesville who works with attorneys across Southern Maryland and Prince George's County as the technical resource on the loan side.
A reverse mortgage is a home-secured loan that lets the borrower defer repayment of the loan balance until a later date. The Home Equity Conversion Mortgage, or HECM, is the only reverse mortgage insured by the Federal Housing Administration and the version this page refers to throughout.
A HECM lets a homeowner age 62 or older convert a percentage of their home equity into cash at closing, fixed monthly advances, a growing line of credit, or a combination. The borrower can pay as much or as little toward the balance each month as they wish, including nothing at all, though they must still keep up with property taxes, insurance, and maintenance, exactly as any homeowner must. HECMs must hold the first lien position, so proceeds are sometimes used at closing to pay off an existing mortgage, converting a monthly-payment-required mortgage into a monthly-payment-optional one.
A maturity event, most commonly the death of the last surviving borrower, the sale of the property, a permanent move out, or a failure to pay property charges, triggers the balance to become due and payable. Because every HECM is a non-recourse loan, the FHA guarantees that neither the borrower nor the heirs will ever owe more than the home is worth when it sells.
If heirs don't want the home: they can sell it on the open market and keep any profit above the loan balance, with up to six months (sometimes extended by HUD) to do so, or sign a deed-in-lieu of foreclosure and walk away without owing the difference and without a credit hit.
If heirs want to keep the home: they can pay the lesser of the full loan balance or 95% of the home's appraised value, typically by taking out a new forward mortgage, or simply pay off or refinance the balance if it's less than the home's value.
Non-borrowing spouses: under HUD rules from 2014, an eligible spouse not named on the original loan who still occupies the home after the last borrower dies may defer repayment and remain in the home during the deferral period, provided they keep paying property taxes and insurance.
When a HECM borrower dies, heirs can sell and keep equity above the payoff, keep the home by paying the lesser of the balance or 95% of appraised value, or sign a deed-in-lieu and walk away, since the loan is non-recourse. Timelines with the servicer matter; Ken's heirs page covers the mechanics your clients' families will ask about.
A reverse mortgage can fund a spousal buyout so one party stays in the home, with flexible repayment protecting both retirement plans. Alternatively, the home is sold and each spouse uses their share of equity with a HECM for Purchase to buy separately, often with no required monthly payment for either, bringing roughly 45 to 70 percent of the new purchase price as a down payment.
Proceeds can pay for in-home care, LTC insurance premiums before care is needed, a nursing home deposit when one spouse still lives at home, or private-pay care during Medicaid look-back planning. A HECM line of credit is not a countable asset that affects Medicaid, SSI, or VA benefit eligibility, which is precisely where your counsel and Ken's product knowledge belong in the same meeting.
HECM proceeds are generally not taxable income, and some planners let interest accrue before making a payment toward the balance so the eventual deduction can be bunched, or pay interest the same year as IRA withdrawals to offset retirement income. Home equity must be part of the overall planning process, including funding the attorney fees for trusts, wills, and advance directives. (Not tax or financial advice; Ken refers clients to their own tax advisor for specifics.)
Compared with a life estate, a reverse mortgage keeps equity accessible in liquid form for the senior's needs, isn't at risk depending on what children decide to do when the house is sold, and passes 100% of unused equity to heirs at sale with no deed transfer required beforehand. The tradeoffs run both directions, and the analysis is client-specific.
For a senior struggling with forward-mortgage payments, a HECM that pays off the existing loan can be a sustainable alternative, provided the required financial assessment shows property charges are sustainable going forward. Separately, because a reverse mortgage places up to two liens on the home, some practitioners use it in pre-bankruptcy equity planning, and funds already sitting in a HECM line of credit may be protected from liquidation if the reverse mortgage was in place before a filing.
"Even the attorney who feels negatively toward reverse mortgages needs to know and understand them and how they could be used in legal planning. Blanket advising against reverse mortgages on general principles without reasons specific to a particular client's situation is somewhere between incomplete legal analysis and legal malpractice."
It can be, depending on the client's facts. A HECM is a tool, not a recommendation in itself. It can free up liquid cash from an otherwise illiquid asset (the home), fund long-term care or attorney fees for trusts and advance directives, or help prevent foreclosure for a client struggling with a forward mortgage payment. Whether it fits depends on the client's health, family situation, and planning goals, which is a conversation between you, the client, and a loan officer who can lay out the numbers.
The loan becomes due and payable. It is typically satisfied by selling the home; because a HECM is a non-recourse loan insured by the FHA, neither the borrower's estate nor the heirs will ever owe more than the home is worth when it is sold. If the heirs want to keep the home, they can pay off or refinance the balance, or pay the lesser of the loan balance or 95% of the home's appraised value. If they don't want the home and there's no equity left, they can sign a deed-in-lieu of foreclosure and walk away without a bill or a credit hit.
Not necessarily. Under HUD rules issued in 2014, an eligible non-borrowing spouse who was not named on the loan but still occupies the home after the last borrowing spouse dies may be able to defer repayment and remain in the home during what's called the deferral period, as long as they keep up with the loan's obligations, such as paying property taxes and insurance.
With a life estate, the equity and value of the arrangement are at risk, funding living or health expenses from the house is harder, and a sale can trigger capital gains depending on the tax structure. With a reverse mortgage, the client keeps the home and remains on title, equity stays accessible in liquid form for planned or emergency needs, and when the home is eventually sold, 100% of any unused equity goes to the heirs with no deed transfer required beforehand.
Yes, in two common ways. One spouse can use a reverse mortgage to buy out the departing spouse's share of home equity without disrupting either party's retirement plan, since repayment is flexible. Or the home can be sold and the proceeds split, with each former spouse using their share as the down payment on a new primary residence financed with a HECM for Purchase (H4P) loan, often with no required monthly principal and interest mortgage payment on the new home.
A reverse mortgage places up to two liens on the home (one from the lender, one from HUD), which some practitioners use as part of planning to reduce accessible equity before a bankruptcy filing. If a reverse mortgage is already in place before a bankruptcy is declared, available funds in the HECM line of credit may receive protection from being liquidated. This is legal strategy territory; Ken supplies the loan mechanics and defers to counsel on the legal conclusions.
The branded, printable version of this material, covering reverse mortgage uses in legal planning in more depth: silver divorce scenarios, elder care, LTC and Medicaid issues, tax planning concepts, estate planning, life estate alternatives, foreclosure protection, and bankruptcy and creditor matters.
The guidebook is designated for professional audiences and is not distributed to the general public, so Ken provides it by request. Identify your firm and practice area and he will send it to your business email. He is also available for CLE-style overviews with your firm or bar association group.
This guidebook is distributed to verified attorneys and legal professionals directly rather than posted publicly. Submit your professional details and Ken will send it to your business email, usually the same business day.
Fairway Independent Mortgage Corporation, National Recognition
These are national recognitions earned by Fairway Independent Mortgage Corporation (NMLS #2289), Ken's lender, not an individual award given to Ken Powell. Source: fairwayreverse.com.
Describe the situation in general terms and Ken will lay out how the loan mechanics apply, so you can advise with the full picture. No client names required.