The Old Man & His Money
June 4th, 2008
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I overheard a conversation the other day. It went like this:
“The biggest issue with reverse mortgages is that in one shot seniors can get a pile of money, spend it and then be left with nothing. Maybe it would be a smart idea if we limited access to senior equity.”
When I hear such comments I really wonder: Have folks thought about what they’re saying?
The truth is that anyone with refinanced equity, whether from a home equity line of credit, second mortgage or new and bigger first lien can go out and spend their cash however they wish. In other words, when you borrow money — regardless of your age — you have an obligation to be a responsible borrower.
This is not only true of real estate equity, it’s also true of an inheritence, an award from a court or a good day at the track. From any sudden cash infusion.
But what is responsible? Who other than the spender can really say? Who, exactly, should limit access to real estate equity?
It reminds me of a story.
The old guy had retired to Florida. He had his money and he also had about $5 million set aside for his adult children. All was good until a young lady came into his life and he rewarded her with wonderful gifts. Fearing that the money destined for them would be spent on Dad’s new love interest, the children sued to take over the old man’s financial affairs.
In court, the children’s lawyer said his clients should get control of the cash because the father was old and non compos mentis. The old man had been half awake to this point, but now he looked up and said to the judge, “Whaddaya mean I’m senile. I’m here and it’s my money. She makes me happy. Why is that irrational?”
The judge laughed, realized the defendant was acutely aware of his best interests, and threw out the suit.
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