Resource for Conservators Seeking Reverse Mortgages

September 14, 2021

The process of taking out a reverse mortgage on a property that is in conservatorship takes a few steps, but it can be done.

Conservatorships are established when a court deems a person incapable of making certain decisions, and can encompass two categories: for a person, or for a person’s estate. Some conservatorships cover both aspects.

They are generally put into effect when someone petitions the court to be appointed a conservator of an individual (usually a relative), and/or that individual’s finances and estate, whom they deem to be incapable of making their own decisions.

For example, adult children will sometimes petition the court to appoint them as their parents’ conservator, if they feel their parents are no longer competent to make decisions related to their well-being or finances.

Before granting the conservatorship, the court requires the petitioner to establish that the individual is unable to manage his financial affairs or make decisions relating to other aspects of life.

How can conservators get a reverse mortgage?

Conservators have exclusive control over the conservatee’s affairs, and they must be able to show that their actions are taken with the best interests of the person in conservatorship (sometimes called a ward) in mind.

If you’re a conservator and you want to take out a reverse mortgage on your ward’s home, you’ll be required to get a probate court approval that will give you the ability to encumber the property with the loan.

From there, if the conservatee is deemed lacking in legal competency, you would have to complete counseling required of all would-be reverse mortgage borrowers (per the Federal Housing Administration’s rules for its Home Equity Conversion Mortgage (HECM) program) on behalf of your ward.

Even though you’ve already been court-appointed as someone’s conservator, the specific court approval for a reverse mortgage is necessary because lenders are required to prove a conservator’s authority to obligate a borrower with a loan.

Incompetent borrowers (i.e., individuals in conservatorships) are not able to sign any mortgage documents, so the conservator is required to execute any necessary documents. If you’re the conservator, that means you would be in charge of filling out the reverse mortgage application and signing the documents.

As part of the reverse mortgage loan application process, conservators are required to meet with the lender face-to-face, unless the property in question is 50 miles or further from the lender’s nearest office. For those outside of a 50-mile radius, a telephone interview is permitted.

Conservatorships vs. Power of Attorney

A conservatorship and a power of attorney are similar in that both authorize a person to take control over someone else’s financial affairs, including providing management of money and other properties. This encompasses the ability of powers of attorney to take out a reverse mortgage on behalf of someone else.

However, unlike conservators, those with financial powers of attorney are not required to be court-appointed. Rather, a power of attorney is generally designated by someone who is still legally sufficiently competent and has the wherewithal to make such an appointment.

Conservators have exclusive power over their wards’ affairs, but this is not the case for financial powers of attorney, where the person whose estate is in question still has decision-making rights.

As with conservatorships, though, those with power of attorney must be able to provide ample proof and documentation that the person they’re acting on behalf of is indeed incapacitated.

For example, a title company needs documentation in the form of a doctor’s letter if a power of attorney is seeking a reverse mortgage on a home, and someone on the property’s title is incapacitated.

Getting a reverse mortgage as a conservator is a somewhat different process than for a legally competent borrower. If you have any other questions about how to do this, we’d be happy to help.

If you have a question regarding conservatorships or power of attorney guidelines please call us Toll Free (800) 565-1722

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8 Comments on this Article

Denise
February 22nd, 2022

Hi Arlo,

I am the permanent Conservator for my 92-year-old mother, her home is in a reverse, we are refinancing to do repairs and upgrade for her Mobility around the home. Although the home is sound and in a thriving desirable neighborhood and the realtor worked up a deal estimating what the houses on the block sold for.

The appraiser put in $50k less stating needs updates oh and her home is 500 square feet larger than the other homes compared. The realtor changed they said they were going to ask the appraiser to reconsider this took over 10 days to have her return my calls, I called and they answered said the appraiser would not change, and now their lawyers are questioning my Conservatorship and outside of the original certificate from the court, they wanted the other paperwork that I got with it. I faxed it to them another 10 days go by I call them, she emails me if I can have my lawyer (hire a lawyer?) write up something. I speak with probate court; they say just as the paperwork stated no restrictions.

I called HUD counselor he said a person with a power of attorney does not need to get court permission and the Conservator is higher than a POA. I call, the realtor is out I must wait another 2 days. She exclaimed she doesn't know why they want this; she is going to under writer to see what we can do. I now must wait 4 days for the realtor to get back to the office taking a long president's day weekend we have been working on this for almost 4 months due to this, that with the realtor. Are they trying to back out of doing the refinancing? Thank you!
Reply to Denise
- ARLO™
  February 22nd, 2022
  
  Hello Denise,
  
  HUD is very precise in their requirements for a loan that is completed using a Power of Attorney or court ordered conservatorship. HUD states that the lender must provide evidence that the conservator or guardian has authority to obligate the borrower and based on experience with HUD, lenders have come to learn this means that they must have a specific notification from the court that the conservator or guardian is approved by the court for the reverse mortgage financing in question.
  I honestly do not know how this evolved to this point (it could be that some court(s) would not recognize the financing later or what) but lenders will require an approval from the court for reverse mortgage financing when sought by a conservator on the property of another. Just speaking to the probate court and their telling you that it says no restrictions isn't adequate. You need them to review the request and issue an approval for the financing. It happens routinely and although it is just another step, it is one that HUD feels is important to protect seniors.
  
  With regard to the appraisal, the valuation process is a very difficult one to explain to anyone in a short blog question. The appraiser is most likely a licensed independent contractor of an appraisal management company that your lender cannot influence in any way when it comes to value. They can ask that the appraiser correct any errors in the report, but they cannot even suggest a value of any amount.
  The lender can request a reconsideration of value based on information that the appraiser did not use that they feel is more indicative of the value of the home being appraised but, in the end, if the appraiser reviews the new information and concludes that the sales, he/she used to be more similar to the ones your lender provided, he/she is not under any obligation to change their estimate of value. Foe example, you said the appraiser's sales were all smaller.
  If you found similar sales that were the same size, same condition and sold recently that sold for higher prices, that should warrant a reconsideration. If your sales though were all recently updated (remodeled), newer houses, on larger lots, and sold much more recently or are much older sales, the appraiser may feel that this information is not as valid to compare to the sales he/she found that are the same age, also needed updates and were a different size. It is the appraiser who makes the final call as to which home is more comparable, not the lender or the homeowner.
  
  But you do still have other options. That appraisal is valid for 120 days. You can wait for it to expire and then start over with a new appraisal if you see other homes now selling that are more similar to mom's house that you believe will support a higher value (you can't use sales that take place after the appraisal date on the existing appraisal).
  The danger in this is that we are in a rising interest rate market right now and no one can tell what property values will do in the future. The future is always somewhat of a gamble when it comes to rates and values. But the options are there.
  Reply to ARLO
Sarah
July 2nd, 2021

is it hard for temporary conservators to obtain a reverse mortgage?
Reply to Sarah
- ARLO™
  July 10th, 2021
  
  Hi Sarah,
  
  It is not "hard" but you need to have the court approve the reverse mortgage specifically. I'm not aware of a single incident of a court denying the request when the conservator is acting in the best interest of the homeowner. It just is an additional step that takes time in some cases depending on how quickly you can get the approval.
  Reply to ARLO
Geoff
October 23rd, 2019

My parents have had a reverse mortgage on their primary residence in another state for 5 years. My father has since passed away and I have legal guardianship and conservatorship over my mother who is mentally incapacitated presently. She is currently in hospice living with us.

It seems that there are two competing time restrictions in the agreement: (1) occupancy of the property for 183 days of the calendar year, (2) not maintaining the property as a principal residence for a period exceeding 12 months because of physical or mental illness. I'm trying to discover what we must do to keep the property with my mother in her condition. Does she have to be physically present at the property for 183 days / year, despite her condition, or must she be back at the property before 12 months have expired? If the latter, how long must she remain at the property to comply.
Reply to Geoff
- ARLO™
  October 23rd, 2019
  
  Hello Geoff,
  
  The two time periods mentioned are for different events. The borrower must maintain residency in the home as her principal residence to follow the terms of the loan. The requirement for the home being her primary residence means that she must live in the property for more than half of the year each year, receive her mail there, and it must not be a rental property.
  She does have the ability to be absent from the property for a medical absence for up to 12 months with notice to the lender. In such a case, all you would need to do is contact the lender and let them know that she needs to convalesce and that she will return by a certain date and then she would follow the terms of the loan.
  
  The primary residence provision (more than half the year) mainly applies to homeowners who may have a second home, spend summers traveling or plan to live in locations at times during the year other than the property on which the borrower has the reverse mortgage.
  If you think your mom is unable to continue to live in the home, you should probably consider selling the home sooner rather than later. If you do not think her condition will improve enough to where she will be able to live on her own within the next 12 months, there really is no reason to continue to accrue interest on the loan only to have to sell it later when the balance is even higher.
  If you keep her out of the home and the lender becomes aware of this before you notify them, they could begin a foreclosure action which could result in additional fees being incurred. If you really believe that mom will improve and be able to return to the home, then just watch your timing so that you keep the timeframes discussed in mind as you plan mom's residence location.
  If you get 6 or 9 months into her absence and plans have changed, you can always adjust and move to sell the home at that time as well.
  Reply to ARLO
diane
August 15th, 2015

can other siblings do this without others knowledge
Reply to diane
- ARLO™
  August 17th, 2015
  
  Hello Dianne,
  I'm not sure what you're referring to, Power of Attorney or Conservatorship, but I am not an attorney and cannot give legal advice so I would strongly suggest you contact legal counsel in the state in which your parent(s) live for a definitive answer. There is more here than a simple "yes or no" answer that would include mental capacity, prior trusts, wills, etc., state laws and in the case of Conservatorships, the courts. I'm sorry, but I would not want to give you a bad answer. I wish you the best.
  Reply to ARLO