Reverse Mortgage Guide

They have people over 62 in a lot of places and it follows that reverse mortgages are offered in many countries.

One of the most active reverse mortgage markets seems to be Australia, and their Senior Australian Equity Release Association of Lenders (SEQUAL) recently came up with an announcement that raises an important issue for anyone considering a reverse mortgage.

We take for granted the idea that a reverse mortgage is a non-recourse loan; that is, neither the borrower nor an estate owes the lender a dime beyond the value of the property. But are there circumstances where this might not be true?

The Sydney Morning Herald reports that certain Australian reverse mortgage lenders had “written into contracts the right to scrap the guarantee if the borrower defaults on a loan repayment, or, in some more extreme cases, fails to pay bills on time or maintain the property.”

In other words, that non-recourse guarantee was not absolute.

Now, however, beginning January 1, 2008 all reverse mortgages made by SEQUAL members will have an iron-clad guarantee.

“SEQUAL’s code of practice,” says the association, “now contains minimum contract requirements to ensure that the No Negative Equity Guarantee stands in all cases, except when a borrower has been fraudulent or wilfully damaged the property or has tried to sell the home without the approval of the lender.”

“Even if a retiree defaults on their loan, the No Negative Equity Guarantee will still apply
under these changes – that’s powerful protection for borrowers,” says SEQUAL Executive Director, Kieren Dell.

The Australian case raises an interesting point: If you’re looking at reverse mortgages, have your attorney check the language to assure that the non-recourse feature is every bit as strong as the Australian version — or stronger.

This entry was posted on Wednesday, September 12th, 2007 at 3:04 pm and is filed under Reverse Mortgage . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.