<div>"I've been poor my whole life, like a disease passing from generation to generation. But not my boys, not anymore." — Toby HowardThe quote above is from a 2016 movie called “Hell or High Water,” and it provides an interesting lesson about reverse mortgages.But to explain this I need to summarize the plot of the film, so here’s your spoiler alert.At the center of the story are two brothers, both down on their luck. Their widowed mother has just died after a lengthy illness, and to provide enough money to live on, she took out a reverse mortgage against her ranch. Her will left the property in trust, not for her sons, but for her grandchildren who are minors. The problem is that now that she is gone, the bank wants to foreclose on the property to pay itself back for the reverse mortgage. Oil has just been discovered on the property, so it’s worth much more than the mortgage balance, but nobody in the family has the money to keep the property out of foreclosure.Now I want to make this very, very, very clear: Do not do what these brothers did. Robbing the branches of this same bank in order to pay it back with its own money can get you into a lot of trouble. I avoid giving specific legal advice in these columns, but I am comfortable telling you not to rob banks.The point I want to make is about these reverse mortgages. Most of you have at least a general idea what one of those is, and it may look like a tempting option. With a regular mortgage, you get a lump sum of money upfront, and then you gradually pay it down. With a reverse mortgage you don’t get a lump sum, you receive gradual payments over time, so the debt keeps growing. It turns an illiquid asset into an income stream.The exact terms of a reverse mortgage depend on the contract. It might be that when the debt reaches a certain point, they won’t pay any more. Or they may even be able to take the property from you at that point. Many of these companies advertise that “you can never lose your home while you’re alive,” which may be somewhat true, although sometimes people are surprised to realize they could still lose the property if they can’t pay the property taxes or condo fees. Because terms can vary, you shouldn’t consider this without talking to your financial adviser or accountant. Not just the guy who’s trying to sell you the deal.Is a reverse mortgage a good idea? Usually not, but there are exceptions. The classic case for a reverse mortgage would be a retiree who really wants to be able to stay in the same home, and has substantial equity, but doesn’t have enough income to meet expenses. Oh, and one other thing: They don’t have enough other assets that they could liquidate to meet that income shortfall. Because if they have other assets, such as investments or IRAs, any responsible financial planner is going to tell them to use those assets before taking out a reverse mortgage.The problem many families run into, after the parent dies, is coming up with the money to redeem the property so it isn’t foreclosed. If the parent had a lot of cash they were leaving, it could be used to pay that reverse mortgage, but then if they did have that kind of cash they shouldn’t have been taking out a reverse mortgage in the first place.The problem is not always intractable. Sometimes the family members have enough of their own money to be able to redeem the mortgage, or their finances are strong enough to be able to refinance to pay it off and keep the property, or the property is in good condition and can be sold promptly. But if not, it can cause real issues. And it can be even worse if there are delays in the ability to sell and refinance—for instance, if it takes a while to get probate opened, or if there was a transfer on death deed (since that means they can’t sell or refinance for a year).Which, for those who’ve seen the movie, is the answer to the question: “What don’t you want?”Kenneth Kirk is an Anchorage estate planning attorney. Nothing in this article should be taken as legal advice for a specific situation; for specific advice you should consult a professional who can take all the facts into account. But don’t rob banks. That’s a given, I hope.</div>

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"I've been poor my whole life, like a disease passing from generation to generation. But not my boys, not anymore." — Toby Howard. The quote above is from a 2016 movie called “Hell or High Water,” and it provides an interesting lesson about reverse mortgages. But to...

Reverse mortgages can come back to bite you

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"I've been poor my whole life, like a disease passing from generation to generation. But not my boys, not anymore." — Toby Howard. The quote above is from 

Reverse mortgages can come back to bite you

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