Reverse Mortgages have many practical applications but one of the common applications where people get stuck is with funds for care involving an incompetent loved one. Keeping a loved one in their home and providing for care can be very expensive. A Reverse Mortgage is a nice tool that will allow you to access home equity to pay for in home care, but it is not an easy task with a loved one that has been deemed mentally incompetent.
Anyone that falls into this category must have a representative with a valid power of attorney (POA) in order to obtain a HECM Reverse Mortgage. The rules are very strict and if you are not careful you will find yourself in no man’s land without eligibility for a Reverse to access the funds you need for care.
A common pitfall I am seeing across many prospects and clients is a very reactive money centric focus. People are programmed to quickly pull the trigger and terminate a fiduciary relationship, such as an attorney that charges a fee, but currently holds a potentially valid POA. They then quickly have their loved one sign a new POA for a family member. Here in lies the problem. A POA is only valid if it was signed when the homeowner seeking the Reverse Mortgage is deemed mentally competent. A detailed diagnosis from a doctor is required to satisfy this requirement. It is very common to find that the previous POA from the fiduciary that was recently terminated would have made things easier if it was still in effect. Many people that are very reactive with a goal of saving money find themselves with a POA that is invalid because it was signed beyond the point of competency.
How do you avoid this reactive reflex that will get you into trouble? It’s simple. First focus on the care and general needs of your loved one. Once this is determined, focus on the money aspect and determine how you are going to fund the budget. It’s a basic plan that will allow you to fund your budget and secure the required care for your loved one. If, by then, you are still unhappy with the fiduciary POA then you can certainly fire them but your loved one’s plan for care is secure and funded.
Powers of attorney are difficult situations especially with Reverse Mortgages. My recommendation is to focus on a definitive plan for care first and then the money aspects second to avoid the pitfalls that can get you into trouble. We all want to save money but let’s not be destructive in the process.
Program note: The final implementation date for “Financial Assessments” has been moved to April 27th, 2015.
George H. Omilan
President-CEO - NMLS# 873983
Jefferson Mortgage Group LLC
Helping seniors with HECM Reverse Mortgages in Virginia, Maryland and Pennsylvania.