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Elder Law Reverse Mortgages and Legal Capacity

Posted on June 27, 2008 by John Gosselin

Getting to Sure: Legal Capacity and the Elder Lawyer in the Context of Reverse Mortgage Transactions

Introduction: Legal Capacity and the Elderly

In general, the law presumes that all adults have legal capacity unless proven otherwise. The legal standard of proof is “clear and convincing” which means, in essence, that the law sets the bar pretty high for those wanting to prove that someone is incapable of being a legal person and, therefore, unable to be a client or enter into contractual arrangements. That being said, legal capacity is situational, as is the required degree of mental capacity, both depend on the proposed act. For example, a relatively low level of capacity is required for someone to create a valid will (individuals making a will only need to show that they understand that the document they are creating is a will), while a higher level of capacity is needed for providing informed consent to medical care. The degree of legal capacity necessary to establish a lawyer-client relationship lies somewhere between the capacity of a will-maker and that needed to give informed consent to medical care. In order for prospective clients to ethically be considered legal clients, lawyers must be able to establish that the clients have sufficient legal capacity to both become the lawyer’s client, as well as having the legal capacity to take whatever legal action the client purports to do.

Medical Tests and Legal Ethics: What’s the Standard Measure of Capacity?

When dealing with elderly clients, the law’s general presumption of the client’s capacity may be inaccurate in many situations involving elderly clients. When family members (e.g. adult children), brings an aged person to an elder law attorney, in some instances they may be doing so because of some observed events or behaviors that suggest to them that the person’s mental faculties are declining. Such non-clinical observations while not determinative, they do raise the question of whether the person in question has the legal capacity. How then does an elder law attorney determine a prospective client’s legal capacity?

According to Veda Johnson, who has been a geriatric nurse for ten years working in nursing homes and hospitals in Orlando, Florida, where the elderly population has been growing rapidly for the last ten to fifteen years, assessing the mental acuity of an elderly patient is not simple. There are several kinds of tools in the form of scales or assessments, like the Glasgow Coma Scale for example, that are used to evaluate how “alert and oriented” an elderly person might be. Unlike nurses, lawyers seeking to determine whether elderly clients have sufficient legal capacity do not have any professional tools available to them. There is no standardized procedure or even a universally accepted legal definition. And in both the medical arena and the legal field determining if a person is losing her mental faculties is never a yes-or-no question.

Each lawyer must make an independent, holistic determination on a case-by-case basis, each time weighing all the facts and circumstances. Some attorneys rely on their personal observation of the older person plus comments from those who spend time with the older individual. But, determining if one has legal capacity is not the same as rationally determining what makes sense to the according to attorneys’ predilections. So attorneys must be aware of keeping their own prejudices at bay when making a determination. While bizarre or inexplicable behavior can be interpreted as evidence of diminished capacity, eccentricity is not the same as incapacity. But, as one might imagine, the dividing line can be exceedingly difficult to draw.

The Model Rules governing lawyers’ ethics nationwide are primarily aspirational, but should at least guide lawyers’ decisions about where the line falls. States may also have ethic rules on what constitutes legal capacity in the context of representing elderly clients. In Massachusetts, for example, Rule 1.14 of the Massachusetts Rules of Professional Conduct lays out what lawyers must do if they suspect that a prospective client lacks legal capacity. The rule does not specifically speak to elder attorneys; however, Comment 1 to the rule states in part, “it is recognized that some persons of advanced age can be quite capable of handling routine financial matters while needing special legal protection concerning major transactions.” Entering into a reverse mortgage transaction is more complex than contracting for other secured loans (like home equity loans, for example) so a reverse mortgage can be considered a “major transaction.” There will be times when a lawyer will conclude that a client seeking to obtain legal representation in procuring a reverse mortgage loan lacks legal capacity, but has legal capacity for other contractual matters. If this is the case, there are a few options for lawyers that allow them to represent an elderly client.

Powers of Attorney

One option is obtaining a power of attorney. There are three kinds of power of attorneys. There is the non-durable power of attorney which terminates when the person who created it becomes legally incapacitated. A durable power of attorney, on the other hand, continues to be valid even after the principal becomes incapacitated. The third kind of a power of attorney is the springing power of attorney which becomes effective only upon the happening of an event that has been designated in the terms of the document. All powers of attorney terminate automatically upon death.

It is better for seniors to create power of attorneys when they are legally competent and in good health. But, if there are already health problems, early signs of dementia or Alzheimer’s disease, one should be created immediately. By creating a durable power of attorney for finances, with gifting authority, for example, seniors can appoint someone else to handle their personal finances, including the authority to transfer your assets even after they become incapacitated.

Guardianships

Guardianships are a more formal option than powers of attorney. They involve going through a legal process in the probate courts. There are generally three types of guardianships. First, guardianship of the estate, or as it is also known, conservatorship, which is limited to substitute decision making for matters concerning the incapacitated person’s property (assets). Second, guardianship over the person, which gives the guardian control over decisions affecting the “person’s person”, such as: where to live or whether to consent to medical treatment. Third, plenary guardianship, which grants guardians the power to make decisions over both the person’s property and person. Within the context of these three forms of guardianships, most state statutes permit probate courts to appoint limited guardians; which means, as the name implies, that such guardians have no more power than is necessary to meet the needs of the persons over whom they are appointed.

Joint Ownership Arrangements

Powers of attorney and guardianships are not the only ways of making sure that an older person will have a mechanism in place for taking care of financial affairs when that person is no longer able to do so. Joint ownership arrangements can also be used. The specific forms include joint tenancy, tenancy in common and, for married couples, tenancy by the entirety. The types of joint ownership arrangements have many characteristics in common. One such feature is what happens when one joint owner dies - the other owner automatically assumes ownership and control of what was owned in common. Creating a joint tenancy can be quite simple. Adding a new signature on a bank account or changing a deed on real estate may be sufficient; no special forms are needed. But, creating a joint tenancy can have complex financial, tax and legal consequences, thus, it is probably advisable to consult a lawyer or financial professional for advice before creating one.

Revocable Trusts

Another alternative to guardianship is creating a revocable trust to hold the older person’s (a.k.a. settlor’s or grantor’s or trustor’s) assets. The trustee of the trust might be a close friend or relative or perhaps a bank’s trust department or some other financial institution. The trust may be structured with the settlor as the sole trustee or in conjunction with another trustee who will take over completely if the settlor is no longer willing or able to handle financial matters. By definition, a revocable trust can be modified as long as the settlor is legally capable of making that decision. If the settlor becomes legally incapacitated, and there’s no alternate settlor, then the trust becomes irrevocable and only terminates upon the settlor’s death.

Reverse Mortgage Transactions and Legal Capacity

Like lawyers, lenders serving seniors 62 or older who do not have the legal capacity to enter into a reverse mortgage transaction can do so with the person or entity appointed in a durable power of attorney or with a court order guardian. Under the federal home mortgage program, HECM and HUD, guardians and attorneys-in-fact or agents named in durable powers of attorney (together referred to as legal representatives) may execute the legal documents incident to a reverse mortgage transaction, provided that they have the authority to do so by court order or per the terms of the power of attorney contract. Part of any reverse mortgage transaction also involves counseling. The law requires that seniors receive counseling before they obtain a loan. Legal representatives can and must request counseling. Whether counseling sessions are between, counselors and legal representatives or counselors and seniors directly, the reverse mortgage counseling code of ethics requires that all counseling sessions, by HUD-approved HECM counseling agencies be confidential in any event.

Reverse mortgages depend on borrower eligibility and living arrangement so it may be harder for a trust or joint owner of a property to become a borrower in a reverse mortgage loan. The trust, for example, would have to be structured in a way that left the 62-year-old prospective borrower/settlor as owner of the property to be mortgaged and the home must also be the settlor’s primary residence. As far as joint ownership, both owners would have to be reverse mortgage eligible. Thus, using revocable trusts or joint ownership as mechanisms to protect seniors at risk of losing legal capacity has some drawbacks. An elder lawyer and financial professional can help seniors and their families decide what options are best for them.

Getting to Sure in an Unsure World: A Charge for Elder Lawyers

Representing elderly clients involve many unique issues for legal and financial professionals. Assessing legal capacity is one of those issues. Many elder attorneys have developed intake forms that include questions which are useful in assessing the legal capacity of prospective clients (as well as run-of-the-mill questions about finances and ownership.) Asking what seems like simple questions like “What day is it today?” as well as questions about medications can be good when trying to decide: (a) does this person have the required legal capacity become a client; and (b) can this person enter into a major transaction like a reverse mortgage? At the end of the day the answers provided may merely help lawyers become more sure (or less certain) about the prospective client’s legal capacity, but at least lawyers would be doing their part in “getting to sure” about that client’s mental capacity as a legal matter.

Gosselin Law provides comprehensive elder law, estate planning and reverse mortgage services. These services include Medicaid applications; emergency elder law matters; real estate transactions; guardianship; estate tax matters; wills; trusts; Medicaid annuities; Annuity planning for Medicaid; Medicaid trusts; special needs planning and related areas. Gosselin Law can be reached at 781-729-0313 or toll free 877-325-6746. Serving Massachusetts and New Hampshire.

Tags: Durable Power of Attorney, Elder Law, Estate Planning, General, Gosselin Law, Guardian, HECM, HECM rate, HUD, Medicaid Consumer Guide, Power of Attorney, Reverse Mortgage, attorney, attorneys-in-fact, capacity, competency, conservatorship, consumer guide to Medicaid, elder care law, elder law attorney, elder law lawyer, elder services, federal home mortgage program, gosselin, guardianship, john gosselin, joint ownership, joint tenants, massachusetts elder law, massachusetts elder law attorney, massachusetts estate planning, massachusetts estate planning lawyer, massachusetts lawyer, massachusetts medicaid, massachusetts nursing home, massachusetts reverse mortgage, medi-services, medicaid, medicaid annuity, medicaid application, medicaid attorney, medicaid benefits, medicaid qualification, real estate closings, real estate title, reverse mortgage lawyer, reverse mortgage line of credit, reverse mortgage loans, revocable trust, settlor, trust

Reverse Mortgage - What You Need to Know from A Massachusetts Elder Law Attorney

Posted on June 27, 2008 by John Gosselin

Reverse Mortgage: Gimmick or Good Deal?

Today, several of the new skin products being marketed tout that they can reverse the signs of aging. They make claims that they can remove wrinkles or increase energy or improve memory. I don't know if any of these products can deliver on their claims. But for seniors 62-years-old or older who own (or almost own) the home they live in, there is a way to reverse one thing in their lives, the mortgage on their homes.

How? In a typical mortgage, a home owner pays the bank a monthly amortized amount. In a reverse mortgage, a home owner pays the bank a monthly amortized amount. Does this sound too good to be true? Is this another anti-aging product gimmick? It's not. For many seniors, a reverse mortgage is a sound financial planning tool, and according to Steve Greenberg of Everbank , "A reverse mortgage might be the ideal option for seniors to maintain their financial independence."

Some Reverse Mortgage History

Reverse mortgages have been available in the United States since 1961 but with considerable variation from one region of the country to another. In 1991 the Federal government expanded its insurance of reverse mortgages, thereby increasing availability across the map. With the rising cost of healthcare, unanticipated increases in inflation, pension plans going under and the unpredictable nature of Social Security, more seniors are looking towards their houses for the cash they need.

In fact, as property values have risen, a number of seniors who took out reverse mortgage loans years ago are returning for second and even third reverse mortgages to harvest the additional equity that has built up in their homes. "Most senior homeowners just want to remain comfortable in their own home." states Ed Barrett, a reverse mortgage expert from Your Home for Life in Westwood, Mass. "With the rising costs of everything today, that is becoming harder and harder to do. Now, with the federally insured reverse mortgage, there is a new option available that really provides for financial security and peace of mind. It really can be 'Your Home For Life'." According to the Federal Housing Administration, which insures most reverse mortgages, by September of 2005, homeowners had taken out about 43,000 reverse mortgages, up from about 37,800 the year before and from 7,700 in 2001. The demand continues to rise with 56% more loans taken out in the first quarter of 2006 than in 2005.

The Ins & Outs of Reverse Mortgages

To qualify for a reverse mortgage, at least one person on the home's title must be 62 years old, the home must be the owner's primary residence (i.e., the homeowner must actually live in the home) and the home must be owned outright or the reverse mortgage loan must be used to pay off the outstanding mortgage balance.

The Federal reverse mortgage loan program has a cap on the size of the mortgage loan it provides, so for those seeking amounts in excess of the Federal limits, state programs and private lenders are a better choice. For both Federal and state programs, there may be restrictions on the types of residences that qualify. For example, under the Federal program condos are eligible, but shareholder-owned cooperatives are not. In Massachusetts, SFR, MFR (1-4 units), Condo's, and HUD-approved manufactured housing are all eligible. Loans generally are written for no more than one-half to two-thirds the value of a home and even if the value of the home changes while the loan is outstanding, the borrower only owes the amount of the loan. The repayment amount can never exceed the value of the home. In fact, under the Federal program, the government makes up the deficiency, if any, to the lending institution, and while Private Placement programs are not insured, all are "non-recourse".

The borrower decides how to receive the loan money. There are four payment options: (1) an up-front lump sum payment; (2) a line of credit; (3) fixed monthly payments; and (4) a combination of a line of credit and fixed monthly payments. With any of these options there are fees and costs, but many of these are the same fees and costs that would be incurred with any loan. For example, there is an origination fee, an up-front mortgage insurance fee, an appraisal fee, and standard closing costs. As far as Uncle Sam is concerned, the money received from a reverse mortgage is not taxable as income, regardless of the way the money is paid. Likewise, many states do not consider reverse mortgages as income. They are not count ed as disqualifying resources for most Federal and state public assistance programs.

A reverse mortgage must be carefully evaluated as it is more complex than other secured loans (like home equity loans, for example). It is suggested that seniors considering one seek the advice of a legal, tax or financial advisor. In fact, the law requires that seniors receive counseling before they obtain a loan. Typically, such counseling covers budgeting and general financial planning, as well as the tax implications and Medicaid/public assistance ramifications. The AARP, Fannie Mae and HUD are three agencies that provide counselor referrals. As previously mentioned, reverse mortgage loans contain fees and costs. However, the fees and costs are low and are not paid out of pocket or up front. They are added to the total loan amount along with the interest, and are paid when the loan's term expires. If a borrower's reverse mortgage is structured as monthly payments "for life", his or her estate may end up paying off the loan.

The Federal reverse mortgage program assumes a life expectancy of 100 years, thus, monthly payments may be lower for seniors closer to age 62 than for those nearer to 100. The life expectancy assumed by Massachusetts, as well as for all other programs is 100 years. One thing about reverse mortgages that seems to worry most seniors is that having a reverse mortgage loan will prevent their children and grandchildren from inheriting their home.

Seniors who want to ensure that their heirs are provided for could take advantage of the new transfer rules under the Deficit Reduction Act of 2005 (passed in 2006) which allows, among other things, transfers made five years before their application for Medicaid to be outside the "look-back period". Being outside the "look-back period" means that the seniors will not be penalized for the transfer. For example, if a senior gives some of her savings and investments to her grandchildren five years before she needs Medicaid, she qualify immediately, provided of course, that she is careful not to make it seem like the transfer was made for the sole purpose of qualifying. Even if seniors do not take advantage of the new transfer rules, the rising costs of real estate should protect the home for their heirs, who can sell the house and use the proceeds to pay off the reverse mortgage note and keep the profit. In fact under the Deficit Reduction Act, seniors with more mortgage on their home may fair better (in some circumstances) that those who have higher equity.

The new law's limit of $500,000 on home equity (which can be increased up to $750,000 at state option) may well mean that seniors owning homes with greater equity could risk not qualifying for Medicaid coverage. If the equity is tapped using a reverse mortgage loan, seniors may be sheltered from disqualification.

Because You Were Curious: Other Home Equity Conversion Mechanisms The desire of seniors to utilize the value of their homes' equity, while continuing to live in their homes has led to banks offering various other home equity conversion mechanisms in addition to reverse mortgages. Home equity loans, sale-leasebacks and financial arrangements in which seniors retain a life interest in the home while selling the remainder interest are other options for seniors to harness the equity in their homes. However, none of these are as beneficial to seniors or are as easy to obtain as a reverse mortgage.

For example, most home equity loans require that the borrower demonstrate a dependable source of income that can support monthly re-payment obligations. As a result, most seniors in retirement are not likely to have the income that is necessary to obtain a home equity loan. In a sale-leaseback (where the home is sold and then simultaneously leased back to the person for life) or a sale of a remainder interest transaction (where the homeowner retains a life estate in the home while selling the remainder interest) a major concern, in each of these transactions, is that it may be difficult to find a suitable buyer who is willing to buy the home subject to the sort of leasehold restrictions that an older homeowner requires. In sale-leaseback and remainder interest transactions, there are also tax and public assistance issues that may not make these viable options for seniors.

Reverse Mortgage in Summary

A reverse mortgage is a financial planning tool that is increasingly being used by senior homeowners from all walks of life. They are an attractive option that allows seniors across the economic spectrum to have more cash by increasing the liquidity of an asset that most do not think of as liquid, a home. According to Ed Barrett of Your Home For Life, "Reverses offer a better quality of life for those who need more cash flow than offered by a pension or social security benefits and enable much needed repairs to your home to be made, all without making a single monthly payment," and while reverse mortgages can't remove wrinkles, increase energy or improve memory, they do help seniors lead a richer and more rewarding life.

Reverse Mortgages or When Uncle Sam Moves Into the Guest Room - Medicare, Social Security and Medicaid Long Term Care Cost Money, You Know?

Posted on June 27, 2008 by John Gosselin

Reverse mortgages are bad mortgage products. Reverse mortgages cost too much in closing costs. Reverse mortgages drain the equity from elders' estates. Reverse mortgage originators prey on the weakest among us. Or so pundits that sell houses, annuities and all manner of ignorant self interested "protectors" of the elderly repeat as if a mantra to ward off the evil of reverse mortgages. Of course, the truth could not be further from their fears.

The US Government needs the baby boomers to embrace reverse mortgages. After all, the national debt has more numbers than my Comcast account, Halliburton needs to keep profitable in Iraq and Americans are living (and getting Social Security and Medicaid benefits) longer than ever. The actuaries tell us that it's not the interest on the national debt, foreign aid or war that will bankrupt the US Government, but rather Medicaid has the power to overwhelm the entire GDP. Where is the money that will pay for all of Uncle Sam' hospital bills?

Medicaid is an issue for the reverse mortgage industry, especially for the reverse mortgage originators that don't know their products and underwriting well enough to advise their customers on the traps. I have been featured recently in the Mortgage Press and the National Reverse Mortgage Lenders Association national teleconference and newsletters as an expert in the intersection of Medicaid regulations and the origination of reverse mortgages.

Here is one of the articles, excerpts from an interview with Atare Agbamu (who writes extensively on reverse mortgage issues):

Traps for the Wary: Reverse Mortgages and Healthcare Benefits -- a conversation with Elder Law Attorney John Gosselin

By Atare E. Agbamu, CRMS

They say old age hardly comes alone. It comes with issues. The same can be said of reverse mortgages, the new pillars of retirement security in these precarious times.

Reverse mortgages come with issues, government healthcare benefits issues. The relationship with government healthcare benefits is deeper and more challenging than most originators and customers suspect.

To help us understand the connection and its implications for originators and customers, I spoke with Winchester, Massachusetts-based elder law attorney John T. Gosselin.

The Managing Attorney of his own law firm, Gosselin & Associates, P C, with offices in Massachusetts and New Hampshire, Mr. Gosselin is one of a few lawyers, in my experience, who really understand reverse mortgages, particularly how they mix with other elder law issues.

Besides overseeing a vibrant probate administration and elder law work, Mr. Gosselin runs a thriving real estate practice, acting as counsel or closing agent in more than 20,000 transactions, advising clients on purchase and sale agreements, mortgages, financial, and title disputes.

A member of the National Reverse Mortgage Lenders Association (NRMLA), Mr. Gosselin has advised and represented lenders in reverse mortgage situations for more than 10 years.

As you will find from our conversation, Mr. Gosselin has thought these issues through. His knowledge, insights, and suggestions will help you serve your customers better. They could help your company avoid some difficult issues too. [Disclaimer: Nothing in this article should be considered legal advice. Seek competent counsel for your unique situation.] The following is a transcript of our conversation.

Atare E. Agbamu: John, what is the loss of Medicaid Eligibility risk for the typical reverse mortgage borrower?

John T. Gosselin: The big risk is being over asset. The way you qualify for Medicaid benefits is to be poor. Medicaid is welfare. So in order to qualify for welfare, you need to be poor. And the government defines poor as a combination of assets and resources. And they define it all as available resources. That's the term that is used. If you have more available resources than the limits that are allowed by law, you cannot qualify for benefits.

The first risk is a borrower holds too much cash in their name, by virtue of holding too much cash, either through a lump-sum distribution from a reverse mortgage or drawing too much down from a HECM [government-insured reverse mortgage] or drawing a small amount from a HECM but not spending it. A lot of our borrowers in the reverse world are used to living on very low amounts of money. So when they start drawing from a HECM, they feel uncomfortable spending it. I have seen that happen where the borrower accumulates relatively modest payments over a short period of time to put them over the asset limits.

The asset limit, commonly, for an individual person, is about $2,000 in liquid resources, in addition to their principal residence. They are allowed to have a principal residence, but they can't have more than $2,000 in total liquid assets at the end of any month. So at the end of any month, they can't have more than $2,000 standing in their name and receive Medicaid benefits.

So the risk is that they are going to draw down or borrow more than what is allowed. By doing that, if they are over age 65, as almost all our reverse borrowers would be, it will automatically put them in situations where they are either going to be disqualified for benefits and/or subject to reimbursement for benefits they have already received. That is the risk specific to Medicaid.

There is another risk which is also related, Supplemental Security Income (SSI), which is an additional welfare program. It is intended mainly for people who are very poor, who have neither Social Security nor virtually any social security income. This is another scheme which the federal government provides for its poorest people. Generally, these are people who never paid into the system by working at jobs which provide for federal social security and insurance benefits. It is not an insurance program; it is a federal welfare benefit. And that program has very strict income guidelines.

Although a HECM advance doesn't disqualify them as income, there is a risk of going over the asset limits. There is income that is assumed to come from those assets. There is a formula that is done. If they are holding too much in assets, they can be disqualified from SSI. Again, holding too much cash is a problem. Having money in a given month is not a problem. They could draw down tens of thousands of dollars if they spend it for their own personal needs, their care, and their protection. They can really spend it for anything. They are spending an asset that is protected, which is their house. At the end of 30 days, they better get that asset back under $2,000. At the end of each month, their cash has got to be under $2,000. And they could not have accumulated other easily liquidated assets, like buying jewelry, for example. They can't buy more than one motor vehicle for their own use. They can't accumulate collectible assets. They can't go out and buy antique furniture that is going to carry a cash value or easily liquidated value. So they are somewhat restricted in how they use their funds, but not terribly.

One other dimension that people should be aware of (I don't expect this to occur often) is that the tenure payment could be construed as income. We usually say that reverse mortgage payouts are never income, that it is always drawing against the value of the house, but the reality is that when the balance of the mortgage exceeds the value of the collateral, it can be recognized as income; because, effectively, it is no longer a loan because the proceeds are exceeding the value of the collateral. The IRS would recognize that as a form of taxable annuity income. That could run into some problems.

Now why I say it shouldn't come up much is that the tenure payment is fairly conservative. The formula used to come up with the numbers really anticipate someone living quite some time before the loan gets upside down; but, in a declining real estate market, you could, potentially, see that become an issue in the future.

AA: From your experience, how valuable is Medicaid Eligibility to the average senior person? For it to be a serious loss, it has got to be pretty valuable.

JG: For the average senior, they are probably going to be receiving Medicare benefits because that is an insurance program that people pay in when they work, and they work for wages. The vast majority of people over 65 are on Medicare benefits.

The Medicaid benefits we are talking about will affect reverse mortgages. It could be supporting a spouse that is in a nursing home. For example, if we have a wife that is in the community and a husband in a nursing home, the wife in the community (it varies by state) on average, is allowed to keep the principal residence and approximately $100,000 in assets. It does vary. More or less, it is $100,000. If she goes over the asset limit, she can disqualify her spouse for the benefits that they are receiving for the husband's care and possibly be forced to reimburse benefits already received.

Most often, I think, when a spouse of someone who is borrowing on a reverse is in a facility [nursing home], they are disqualifying the spouse often unknowingly. This is one of the traps for originators. They should inquire whether or not a spouse is in a nursing facility and determine how that spouse is paying for their care. Sometimes the spouse will no longer be on title so the topic does not come up unless a direct inquiry is made.

There are other ways to pay for nursing care. One of them could be VA [Veteran Administration]. The VA is very low cost, and it doesn't really impact reverses as it is tied to service record and not only financial need. There are also religious and community organizations that provide unique living situations for elders, many of these require turning over large lump sums in favor of lifetime care contracts. Home care services are also coming along that will essentially enable seniors to have nursing care at home on a somewhat more affordable basis. Another place Medicaid comes in is community Medicaid.

Community Medicaid is a program that supplements Medicare. Again, it is generally for the poorest people, both seniors and those under 65. The people whose income and ability to pay for what Medicare doesn't pay for is compromised, so they would go for Medicaid benefits in the community, or they need some special services or in-home care through a variety of community programs.

There are in-home care programs that are coming up every day now in every state, where instead of going to a nursing home, the state will subsidize a certain amount of in-home care. It is that in-home care we need to be concerned with because if it is under the Medicaid program, it is subject to reimbursement. Think of Medicaid like a loan from the government.

AA: So this is a very valuable program for the average senior because it protects their health, right?

JG: The Medicaid program we are talking about is a community health insurance benefit. This pays for every aspect of medical care. It pays for prescriptions. It pays for hospitalization. It pays for virtually any medical need of an elderly person. You could have reimbursement obligations in the millions of dollars for somebody who has a serious illness.

You could have someone who has MS [multiple sclerosis], Lou Gehrig's disease, or a form of cancer that has received hundreds of thousands or even millions of dollars worth of care through the Medicaid system. Yes, it is absolutely a valuable benefit.

To lose the benefit for people who are receiving the benefit would probably be catastrophic. They could put themselves in situations where their medical debt could consume the value of their house. If they have no other means of paying for their medical debt, they could be forced into bankruptcy for their medical debt.

The US government needs to find a way to use the wealth stored in home equity for people's care, I think we'll see a much simpler reverse mortgage product coming very soon, like a low interest rate reverse mortgage that's sold directly or at least wholly subsidized by the US Government to get at people's home equity for elders' medical and home care needs.

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AARP Nursing Centers of America - (Baby) Booming Business

Posted on June 27, 2008 by John Gosselin

I was mulling what nursing homes will be like when it's my time for one. After all, my work brings me to these homes almost every day.

First, I expect a lot of competition to sell me a bed, since there will be many more available than needed, so they'll have to offer me incentives to move in. "Free haircuts for life for the first 10 residents. Buy one bed, get another for half-price."

The homes will be far different than they are today. I would expect my nursing home to be named like a major sports stadium, AARP Nursing Centers of America or the Depends Elder Spectrum. Gone will be the TV game shows and nightly bingo - we'll have oldies like Nintendo and Playstation to aggravate our arthritis. On TV, we'll watch reruns of Grey's Anatomy, Family Guy and American Idol.

Instead of that ubiquitous soothing waltz music, we'll have real Muzak oldies like AC/DC, Smashing Pumpkins, and the Black Eyed Peas to keep us moving rhythmically in our rocking chairs.

And if we are out on the porch in the rocking chairs, what to wear? Style matters. How about Abercrombie & Fitch's line of easy access night gowns for geriatric women? And from REI, the Marmot Gortex Elder Pants, now with stain and odor protection. Options include special pockets for the ipod, dentures and the colostomy bag.

Wheelchairs will have flip-out laptops, handy for text messaging our fellow residents. And of course chairs will have GPS gear so we and they will know where we are headed and where we are, should we forget.

Gone will be the dishwater-flavored coffee of today, along with tasteless mush and muck they call meals. We'll get double, no-fat soy vanilla lattes with whipped from the Starbucks' traveling baristas and the Meals on Wheels cart will stock Ring Dings, Ben & Jerry's Chunky Monkey - and every other Thursday - Trans Fat Feast Night! (brought to you by Crisco)- oh the good 'ol days.

Seriously, assisted living facilities and nursing homes are changing with the times - and there is a new trend - identifying and supplying the preferences of their residents. Drab gray institutions simply won't cut the mustard when us boomers are ready for the homes. My dotage may be something to look forward to yet.

Tags: AARP, Elder Law, Estate Planning, General, Reverse Mortgage, attorney, boston lawyer, john gosselin, massachusetts, massachusetts elder law, massachusetts elder law attorney, massachusetts lawyer, massachusetts nursing home

General - Sir Richard Branson - Not a Virgin Any Longer

Posted on June 12, 2008 by John Gosselin

I had the good fortune recently to meet Sir Richard Branson in Boston at the launch of his great new company, Virgin Money. Well, not an entirely new company, it's really Circle Lending re-branded as a unit of the Virgin Empire. You should check out their site at www.virginmoneyus.com.

I have been working with Circle Lending for quite a while. For most of the time that I have known them they have been a sleepy little company with a great idea that was hard to communicate to the always cluttered marketplace. In simple terms, Virgin Money documents loans between family and friends. When I first heard of their business model I thought that it was an act against nature. Seriously, how many people borrow money from their mother with the intention of actually paying her back? Let alone with interest.

Virgin Money US is counting on lots of people to start making their intrafamily loans legit. So Sir Richard and I got to hang out and discuss the status of AIDS in Africa, the British banking system's need for increased consumer confidence in an unsettled world economic setting and the use of biofuel in his Virgin Atlantic 747's to reduce emissions.

Ok, we didn't reach all the topics that I had hoped to, but he was a charming conversationalist and a genuinely nice human being. Virgin Money is looking to help ordinary Americans get access to sophisticated loan products, including the classic Circle Lending family loans, but also complex loan products that should dramatically change the borrowing landscape and particularly hit the traditional banking business square between the eyes. A wake-up call is just what the American banking industry needs. Loans should be made to people who can pay them back. Real terms for real people. Virgin Money gets it. Richard Branson gets ordinary people. He knows that his brand only has value if it delivers unique and true value to consumers. Richard Branson and Virgin do not fake it.

Tags: Circle Lending, General, Short Sale, Sir Richard Branson, Virgin Money, attorney, foreclosure, lawyer, massachusetts, mortgage, richard branson, virgin, virgin atlantic, www.virginmoney.com

Estate Planning: What to Live For

Posted on April 21, 2008 by John Gosselin

October is my favorite month of the year for estate planning. It is the essence of fall. It is the gateway to winter and analogously, to the Winter of our lives.

October as a time of reflection on life is not lost on Major League Baseball. MLB's slogan for October is "I Life for This". Well, I don't. I mean, I do love baseball. I love the Red Sox. I especially love October baseball. But I don't live for 18 men playing ball for millions of dollars. Baseball is a pastime.

What do we live for? Elders, facing the scourge of aging and the loss of those dear to them, lose clear reasons to live. It is not uncommon for me, when visiting an elderly client at a nursing home, to hear weak voices telling anyone who will listen they want to die.

We live for hope. We live for tomorrow. Without that, death is a comfortable option. What's bothering me is the power of the media, America, Inc., and the organized establishment's role in shaping what they thing retirement and aging should look like for millions of Americans. They employ a cadre of image and word specialists to create viewers, customers and members of organizations.

Take AARP, which after an odd name change, no longer stands for anything - It's just AARP (rhymes with carp, except in Boston where it rhymes with no work in our vocabulary). It is an organization solely committed to delivering the most efficient database of Americans old enough to obtain personal credit (OK, they have some standards - you need to be of "retirement" age, which is defined as age 50).

AARP is essentially a big insurance agency, a vast department store and pharmacy with a direct mail business for every pill pusher, gadget and ointment and older American needs to make life complete. Their mission is to sell and to promote the sale of all manner of tschochkes they think older Americans need to live a good and active life.

The media likewise are entwined with pharmaceutical giants in an effort to maintain fear in the minds of the aged so they can sell them salves and potions.

My generation rarely watches the evening news. How do I know? Well, frankly, how many of us need Lipitor, Viagra, Zoloff or any other little pill? The media machine's news function is largely sponsored by Merck, Pfizer, Novartis and others pandering their trademarked brand for all that ails you.

Many older people watch the news out of fear the world is coming to an end. And it is. Just not today, or in your hometown of Suburbia, USA. I think all of this careful and manipulative branding of what it means to age in America is going to be lost wholesale to the baby boomer generation's unique perspective on things. For one, improved health and increased personal debt will keep them in the workforce for many more years. Retirement, what's that?

Technological connections and improved access to information should help boomers comparison shop for services and test the vapid claims of unscrupulous salesmen.

Last, boomers are tired of being boomers. Seriously, how many times do you need to hear you were the product of your parents' pent-up sexual energy, after years of war in foreign lands? These people were rock'n rollers, hippies, yippies, yuppies, dinks and now boomers. They have had enough of labels. I'm looking forward to watching boomers break the media-imposed aging model AARP and the pharmaceutical machine has so carefully created for them.

Tags: AARP, Elder Law, Estate Planning, MLB, Pfizer, attorney, baby boomer, boston lawyer, boston red sox, gosselin, lawyer, massachusetts lawyer, merck, novartis, nursing home, retirement

Short Sales in Massachusetts: What Every Homeowner Should Know

Posted on March 4, 2008 by John Gosselin

The housing market and mortgage industry, like the economy, rise and fall. This is normal and consistent with U.S. economics principles. No offense to major media outlets, but these are normal times. As I write this article, interest rates continue to hold steady at historic lows and housing inventories are at their highest levels in years. This is good news for buyers, not such good news for sellers.

Homeowners purchasing property in recent years may have bought properties priced higher than their current value, and financed those properties at high interest rates or via adjustable rate mortgages. This might explain why there's been a sharp rise in potential short sales listed in Massachusetts this year. Between January and August this year, 287 homes were listed by their owners through MLS (a real-estate listing service) as potential short sales, up from 51 last year. And many experts expect this number to increase in the coming months.

The Long and Short of Short Sales & Foreclosure

Short sales, like foreclosures, fall into the real estate category of arrangements called 'distressed sales,' but short sales differ from foreclosures and other kinds of distressed sales in many respects. For one thing, homeowners do not have to be behind in mortgage payments to venture into the short sales market. They merely have to demonstrate their homes can't be sold for what is owed on them. A short sale is an "arrangement" between the current owner of a home and the lender, where the lender accepts an offer less than the total amount owed on the mortgage. The "deficiency" is the difference between the amount owed, and what is collected at a short sale closing. It is important to note if a bank sells a house (most likely at auction) it is not a short sale. A seller deciding to lower the price and take less profit is not a short sale. Someone who owns a home free and clear, who sells a $150,000 for $75,000 - is not a short sale. For it to be a short sale, there must be an outstanding mortgage on the home and either the seller or the lender must be getting "shorted."

Foreclosure occurs when a lender files a notice of intent to foreclose in the Massachusetts Land Court because of non-payment. This filing notifies the homeowner that unless payments are brought up to date, the home will be sold to the highest bidder. Not all homes that fall into foreclosure go to public sale. Owners have the right to cure, i.e., make up "back payments" up to a point. Pending legislation in Massachusetts, House No. 4085, proposed by the Governor in July of this year, gives homeowners up to 90 days to cure. The 90-day clock starts ticking from the date that the lender mails the notice.

Why Have a Short Sale Instead of Foreclosure?

Even though it is not necessary for homeowners to be in arrears on the mortgages to qualify for a short sale, a homeowner can't just wake up one morning and decide to sell the home in a short sale transaction. Short sales require the approval of the lender, and typically, lenders won't consider a short sale if payments are current. Lenders aren't in the business of buying or selling property and are certainly not interested in losing interest money from interest rates on financed homes. In approving short sales arrangements, lenders usually do diligence on the homeowner/seller, the buyer, and the party financing the buyer. While the kinds of evidence lenders require varies, in doing diligence, all lenders usually require sellers to submit a hardship letter which specifically details the seller's financial difficulties. The lender may also require pay stubs, copies of medical bills, credit reports, checking account statements and other proof of financial hardship. From the buyer or buyer's representative (attorney, broker or the like) the lender will require some kind of release, signed by the seller, authorizing the lender to talk to the buyer about the seller's mortgage. In general, a buyer's first interaction with the lender is through the lender's loss mitigation department. At or near the closing of the short sale, the mortgage lender will review the settlement statement, a contract between the buyer and the seller, containing a description of the source of the buyer's financing.

In making a decision whether to foreclose on a property or to accept a proposal from a homeowner/seller and buyer to enter into a short sale, lenders may consider the following factors, among others:

whether the seller is deserving of a break
whether it would be cheaper to simply repossess and sell
how many other properties the lender currently has in default
whether there are co-signers on the mortgage who can be held responsible for the balance owed on the mortgage

Loss mitigators are also part of the decision-making process. They work for lenders and sometimes receive bonuses based on how many defaulted loans they clear up efficiently and inexpensively. Loss mitigators might be more likely, especially during certain real estate markets, to accept a detailed, well-done short sale plan versus foreclosing on a property. Foreclosures in New England typically cost an average of $50,000 and are time consuming to the lender.

In conducting diligence, homeowners can expect lenders to order what's called a broker's price opinion, which will give the lender some idea of what the property is worth in the current market. Sellers can get their own opinion from an independent appraiser.

What Are the Credit or Other Related Consequences of Short Sales Transactions?

Sellers at short sales will take a hit on their credit score, but a short sale typically turns out better compared to foreclosure, especially if that seller wants to qualify for another mortgage. For example, if a seller's FICO score was 680 before a foreclosure, after foreclosure, the seller's score could dip as low as 400 and the seller may have to wait about 36 months before a lender will offer a reasonable interest rate.

On the other hand, if a seller with the same number of points entered into a short sale transaction, the FICO score will only fall about 80 to 100 points, i.e. to about 580 to 600, and in about 18 months, the seller can buy another home with financing at a good interest rate. As part of the negotiation, sellers (or representatives) might ask the lender not to make an adverse report to credit reporting agencies. Lenders are under no obligation to accommodate this request. In fact, some companies require them to report as part of their policy.

Lenders are likewise under no obligation to "write off" the loan. Sellers may still be legally obligated to pay the difference between the loan amount and the amount that the buyer paid for the property if at least one of the following is true:

(1) the terms of the loan agreement make the homeowner personally liable; and/or

(2) state law requires lenders collect loan deficiencies from homeowners/sellers.

In Massachusetts the current law in this area permits with little restriction, the loan agreement to govern. Thus, it is important sellers review loan documents with an attorney to make an informed decision. Attorneys can advise sellers on legal options or obligations and whether they will be subject to the possibility of a deficiency judgment for the "loss" to the lender who permits them to "sell short."

What About Income Tax?

Sellers might think that they are fine when it comes to taxes from selling a home less than its value. The IRS sees it differently. The deficiency the sellers paid in a short sale transaction is taxed as ordinary income. Short sale sellers can expect to receive a 1099 for debt cancellation from the IRS. In the case where a seller is found to be liable for and has paid a deficiency judgment, that amount can be counted as a loss for tax purposes. For sellers with capital gains, short sale losses can be subtracted from capital gains. For those without capital gains, the law presently allows them to deduct up to $3,000 for the year. Additional losses have to be carried forward to later years at the rate of $3,000 per year. Each seller should be certain to get individual tax advice for specific transactions from an attorney, CPA or other similar professional as part of the process of considering a short sale.

Pending Federal Law and New Massachusetts Regulations

Representatives advising sellers should, in addition to advising on existing tax law, be aware of pending federal law that could potentially affect taxation on short sales (if enacted) as well as new Massachusetts regulations currently in effect. On October 4 of this year, the House passed the Mortgage Forgiveness Debt Relief Act of 2007. In sum, should this piece of legislation pass in the Senate, it will amend the Internal Revenue Code to exclude amounts attributable to a discharge of indebtedness incurred on a principal residence. There are limits on the amount that can be discharged, among other provisions of the bill. Attorneys or others representing sellers in a short sale transaction should keep an eye on this bill and, for now, make their clients aware of it as a future possibility.

Currently Massachusetts has promulgated regulations to protect and help sellers in a different way from the pending federal legislation. New regulations apply to what they call "foreclosure rescue transactions" and "foreclosure-related services." The regulations took effect this September and are intended primarily to protect sellers from charlatans in the foreclosure world who prey on sellers in danger of losing their homes. Here's how scam foreclosure rescue schemes typically work. Businesses or professionals claim to assist consumers who are facing foreclosure by convincing them to convey their property to straw purchasers. The straw purchasers then obtain mortgage loans, permitting the individuals facing foreclosure to continue living in their property for a limited time, and promising the individuals they will be able to later reacquire their homes. The promises of maintaining home ownership are illusory and homeowners lose their home to the so-called "rescuer." These new regulations underscore the need for attorneys zealously representing their clients in Massachusetts and thoroughly investigate the buyers in a transaction.

Selling Short in Short

In the world of investment, securities stocks are often sold short; meaning that an investor sells borrowed securities in anticipation that the price will plummet and the stock can be paid back at a lower price. This is called "covering" a sale of shorted stock.

A short sale in the real estate world is fairly similar. A homeowner who does not yet own the home (i.e., the home is mortgaged) can sell it to a third party to "cover" the mortgage. Short sales in the mortgage world therefore, amount to an accommodation by a lender who hopes to avoid or at least mitigate an impending loss by permitting a homeowner/seller to "short" the property - selling it below the value of the mortgage to a buyer who is not the lender.

As previously mentioned, it is not necessary for homeowners to be behind on their mortgage in order to enter into a short sale transaction. If that is the case for a particular homeowner, it might be important for the homeowner to know a short sale or foreclosure are not the only options. Even though this article is limited to discussion of options to short sales and foreclosures, these are not always the best solutions for every homeowner with an "upside down mortgage." Attorneys or other representatives would be well-advised to have homeowners consider workouts or restructuring of loans, voluntarily offering the lender the deed in lieu of foreclosure or inquiring if mortgage insurance will cover the deficiency. Short sales can be risky, somewhat intrusive and involve a long, frustrating process, but could be worthwhile, provided homeowners and their representatives work together to choose and negotiate the right solution for the right client.

General - Sir Richard Branson - Not a Virgin Any Longer

Posted on January 15, 2008 by John Gosselin

I had the good fortune last night to meet Sir Richard Branson (photo to follow) in Boston at the launch of his great new company, Virgin Money. Well, not an entirely new company, it's really Circle Lending re-branded as a unit of the Virgin Empire. You should check out their site at www.virginmoneyus.com or enter their contest at www.changingthefaceofmoney.com.

I have been working with Circle Lending for quite a while. For most of the time that I have known them they have been a sleepy little company with a great idea that was hard to communicate to the always cluttered marketplace. In simple terms, Virgin Money documents loans between family and friends. When I first heard of their business model I thought that it was an act against nature. Seriously, how many people borrow money from their mother with the intention of actually paying her back? Let alone with interest.

Virgin Money US is counting on lots of people to start making their intrafamily loans legit. So Sir Richard and I got to hang out and discuss the status of AIDS in Africa, the British banking system's need for increased consumer confidence in an unsettled world economic setting and the use of biofuel in his Virgin Atlantic 747's to reduce emissions.

Ok, we didn't reach all the topics that I had hoped to, but he was a charming conversationalist and a genuinely nice human being. Virgin Money is looking to help ordinary Americans get access to sophisticated loan products, including the classic Circle Lending family loans, but also complex loan products that should dramatically change the borrowing landscape and particularly hit the traditional banking business square between the eyes. A wake-up call is just what the American banking industry needs. Loans should be made to people who can pay them back. Real terms for real people. Virgin Money gets it. Richard Branson gets ordinary people. He knows that his brand only has value if it delivers unique and true value to consumers. Richard Branson and Virgin do not fake it.

Tags: Circle Lending, General, Short Sale, Sir Richard Branson, Virgin Money, attorney, foreclosure, lawyer, massachusetts, mortgage, richard branson, virgin, virgin atlantic, www.virginmoney.com

Estate Planning: What to Live For

Posted on January 12, 2008 by John Gosselin