If your spouse has primary control of your joint finances and passes away suddenly, you may have trouble finding or consolidating all household financial accounts. One of the easiest ways to determine your outstanding debts is to run a free copy of both your and your spouse's credit reports. In some cases, these reports can reveal that your home is subject to a second mortgage or reverse mortgage you had no idea existed. Are you responsible for a mortgage taken out on your home without your knowledge or consent? Read on to learn more about these mortgages and how you can untangle a financial mess created by your deceased spouse.
What are reverse and second mortgages?
Both reverse and second mortgages are a way to take advantage of the equity in your home. A second mortgage is usually in the form of a home equity loan or line of credit, which gives you access to a portion of your mortgage in cash. You'll repay this loan over a period of time, and any balance remaining after the initial loan period will be added on to your existing mortgage. Home equity loans and lines of credit are available to most homeowners who have equity in their homes, although credit limits may vary based on the loan-to-value rate of the original mortgage.
A reverse mortgage is available only to those aged 62 or older, and is similar to an annuity. It provides you with regular monthly payments based on the value of your home while allowing you to live in the home until after the death of all parties named on the mortgage. After the death of the last borrower, the home goes to the bank to be sold. If you're under age 62, the only way a reverse mortgage can be taken out on your home is if your name is taken off the deed (and existing mortgage, if you have one). This can cause major issues if your over-62 spouse dies before you turn 62, voiding the reverse mortgage and giving the bank the right to take your home.
What should you do if you find yourself in this situation?
When one partner has a secret spending problem, he or she may go to any means necessary to gain money -- from cashing in retirement accounts to forging your signatures on documents to access home equity. While the latter is a crime, if this deed isn't discovered until after the person's death, no criminal charges will be filed.
However, you'll still want to enlist the help of your local police force to investigate the matter. You'll then have a strong case to present to the lender that may have unwittingly helped your spouse commit fraud. If a second mortgage was taken out in your name without your knowledge, you may be able to have this mortgage invalidated if you have definitive proof that you could not have signed the mortgage documents, and the mortgage company agrees to write off the loan. If you're not sure you can meet this burden of proof, but can't afford to pay both the original and second mortgage, you may be able to seek a loan modification from the bank. You'll need to consult an experienced real estate attorney so that you'll be able to complete the proper forms to be permitted to act on your spouse's behalf.
If a reverse mortgage was taken out in your name without your knowledge, or if you were removed from the deed to your home so that your spouse could qualify for a reverse mortgage, it's likely you'll find your home in the foreclosure process, when your lender seeks to repossess what it now considers its legal asset. Again, you'll want to consult a real estate attorney to determine your best options. You may be able to have the transaction untangled and regain the equity in your home by repaying a portion of the amount received from the reverse mortgage lender, but this process can be complex and you'll benefit from a helping hand.
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