If you have a REVERSE MORTGAGE on your home, a creditor cannot garnish, levy or lien.
If you are one of the millions of people who have decided to get a Reverse Mortgage (RM) on your home to help your financial situation, and have other significant debt, you need to understand what a creditor can and cannot do.
I'm not going to discuss the pros and cons of a reverse mortgage, but only address the characteristics and how it would apply in a collection situation.
A reverse mortgage is a LOAN. The company that sold you the reverse mortgage (RM) took into consideration how much net equity you had in your home.
Let's say it was $100,000 (doesn't matter if the home was paid for or not).
The RM company is LOANING you 70%-80% on the value of your home to be paid out:
- One-time lump sum
- Credit Line (you use when you need to)
The RM company has determined that based on the net value of your home, your age and other factors, they can LOAN you $XXX.00.
When you pass away or the home ownership is transferred, the LOAN, with interest, must be repaid. The idea is that at death or transfer of ownership, the RM and repayment cancel each out.
- The home owner wins and they were able to get at the equity of their home and remain living there.
- The RM company wins as they earn more money than they loaned through interest and fees.
So, can a creditor or collector GARNISH, PLACE A LIEN OR LEVY funds from your RM?
THE ANSWER TO ALL THESE QUESTIONS IS NO! (BUT BE CAREFUL)
Since a RM is a loan, you do not own the home anymore. You live there and everything stays the same, but you have "pre-sold" it to the RM Company.
Therefore, a creditor CANNOT garnish or place a lien.
What about the funds from the RM deposited in your bank account?
This is why I said "BE CAREFUL!"
A creditor that has been awarded a judgment for the claim they made against the debt you owe (credit card, personal loan, etc.) cannot apply for a garnishment or bank levy if the source to the funds are from:
- Federal Benefits (Social Security, Federal Retirement Income, Civil Service Retirement)
- Unemployment Income
- Dissability Income
- Alimony or Child Support
- Various other NON-EARNED INCOME sources including your RM income
If you CO-MINGLE funds from your RM or other sources above with the income you may be getting from a full or part-time job (W2 Income), then a creditor may be able to get at those funds.
The safest thing to do is to open up a separate bank account for the earned income and NEVER CO-MINGLE with the other sources of income.