My parents have a reverse mortgage with a line of credit that has run out of money. It was very helpful to them for many years. One parent is in a long-term care facility and on Medicaid. My other parent is living in the home, and my understanding is that I can live there for as long as I am alive and able to live there. When both parents are gone, I understand that the outstanding loan (including interest, etc. would be due and payable (first position) and that Medicaid would come in and claim whatever they have paid on behalf of the parent (second position). Therefore, what would be your recommendation for the heirs? At this time, the outstanding owed is most likely as much as the market value of the home, therefore, the home value would have to increase a great deal to have any equity, and what equity there might be would be claimed by Medicaid. If family competed a deed in lieu of foreclosure (titling the property back to the investor) would the investor then have to deal with the Medicaid claim? We doubt there would be any equity for heirs, but are grateful that parents have been able to have both reverse mortgage and medicaid to help with finances….We would like to know our choices so we can make informed decisions when the time arrives (with no surprises). Thank you for any help you can provide.

I’m not an expert on Medicaid or the rights the program has to individuals’ assets, including their homes, after passing.  For that, you should consult an elder care attorney in the state where they live because I have limited knowledge that some states have different programs than others, so I don’t know if they all work the same or not.

What I can address is the reverse mortgage.

Yes, your parent, or parents, can remain in the home for as long as one of the original borrowers still occupies the property as their primary residence and maintains the other loan covenants (keeps the taxes current, keeps the property adequately insured, and must maintain the property).

The lender has the primary lien on the property, so if Medicaid does have lien privileges, it would be secondary to the reverse mortgage.

Talk to a professional about Medicaid. 

Here again, an attorney in the state where the property is located is the best to consult with because different states also have different property laws.  There are many “what ifs” scenarios for secondary lienholders to protect their security and what they must do and when.

I honestly don’t know what Medicaid would have to do to protect their interest in the property, nor would they even probably try if there was no equity.  However, as the heir, strictly about the reverse mortgage, you have the right to keep or sell the property if you believe there is still equity in the home.

Payoff Reverse Mortgage at any time 

You have the right to pay off the loan and keep the house for whatever purpose you desire.  If you wish to keep the home, but the amount owed on the reverse mortgage is more significant than the current value, you have the right to pay off the loan at an amount of the existing loan balance or 95% of the current market value, whichever is less.

For example, if your parents’ home was now worth $100,000 and the balance on the reverse mortgage is $125,000, and you want to keep it, you can do so by paying $95,000.  Or if you have a home of your own and really cannot see any reason to retain or sell the property, you can let the lender take it back either with a Deed In Lieu of foreclosure or through foreclosure and not have to do a thing.

Regardless of your choice, you will never owe a dime to anyone, nor will HUD or the lender seek to recover any money from your parents’ estate (other assets).

Again, though, let me stress that I don’t know if this is the same for the folks at Medicaid.  Therefore, I encourage you to make at least one appointment with an attorney who handles these things in that market and find out your rights and liabilities.  I wish you the best.

You may also find our posts in “Heirs & Loan Maturity” helpful.

ARLO recommends these helpful resources: 

Learn How Reverse Mortgages May Affect Your Taxable Income