Mom has a reverse mortgage on her house. If I pay off that loan and buy the house after she moves to a NH will there be a problem with Medicaid?

My mom is on medicaid and lives in my childhood home in MN. My dad is on MA/medicaid and lives in a nearby nursing home. The upkeep of the home is too much for my mom anymore and she feels like she needs to sell. My brother wants to buy the house. My question is: "When the house is sold, what happens to the profit (money left after the mortgage is paid off)? Does any of it go back to the state for my father's nursing home care these past three years? Does my mom lose her MA due to this influx in money and will need to spend down until she has depleted those funds and can reapply for the same medical coverage? Any suggestions on how to protect those assets the best way possible. Thanks so much.

Hello, somehow I missed the answer to my post a week ago. First, I want to thank you all so much for your helpful commenting, especially Igloo! I actually cannot thank you enough. I do want to mention that I DO work as well as take care of Mom 24/7. The way I can do this is that I am a telecommuting medical transcriptionist, so I work right next to Mom. So I am fairly certain I could potentially get a mortgage. However, I think I have changed my mind about buying the house. I'm no spring chicken anymore and I think the upkeep of this big old house would be too much as I get even older. I do realize I will need a lawyer. I am hoping I will still be able to qualify for the Adult Child Caregiver Exception so that I will at least be able to sell the house and keep any profit. The house is a light fixer and if it were fixed up...I could probably get 450. I think a realtor will want about 30k to sell it. After looking at other listings, I think I could probably get at least 375 if I just sold it as is and didn't bother with any cosmetic fixing, pay off the RM loan, and still have enough to maybe put a down payment on a small condo. Thanks again for your very generous advice and suggestions. I am so very grateful.

She’s been a caregiver for 8 years so in the most positive theory.. she would get a loan to pay off the RM of her mom’s at 95% of whatever RM balance is and closer to 250k loan.  I’d be concerned that bank needs for it to be a loan not a mortgage as she’s paying off someone else’s mortgage. And then she would qualify for caregiver exemption to Medicaid - no matter what property is worth -  so there no $ to mom upon property title transfer from mom to her on the released of the RM house to change mom’s Medicaid eligibility.

In mulling this over a bit, it would be hard to accomplish without having a good bit of $ to get a bank to do loan (or mortgage) and to pay in advance for a stellar elder law & real estate attorneys for her & her mom. 

GuestShoppe - omg so houses in her area avg 450k?

Geez Louise I was thinking the more common elderly owner 200-300k older house. Well that could be another hot mess atop all this. I think the conforming loan limits for Fannie Mae are $453k for ‘18. Over 453k it’s a high balance loan and there’s a 90% LTV on HBL for Fannie. I cannot see a lender doing a jumbo (HBL) to someone with no recent work history as they likely have lousy FICO, even if they could do a 10% downpayment for a conventional. Maybe at 20%-25-30%? Whatever the case, whatever the % if property value is average 450k, thats a lot of $$.

Is there anyone on this site who’s a Realtor who can comment on lending?

If FHA/HUD only will do 3.5 - 5% down payments for conforming loans, she’s out for FHA if it’s gets an appraisal over 453k. 5% is always better as no 2nd appraisal needed.

The RM lender - if this is an older long ago done RM - will make a hefty profit
on it if they sell it. They may be unhelpful for family seeking to buy house at 95% of loan. The attorney will have to be very proactive in families interest.

Again any Realtors out there to lend their insights??

Please understand as well that the house when sold to you as Igloo states will need to be sold for the market value. In prior posts you said that homes in the area were $450K. So the money you paid as fair market value would be income to mom when you bought the house. Not the value of RM, but the value of house with RM paid off. Related parties and your mother's dementia are really needing a lawyer to make sure it is all properly scheduled so that you don't get Medicaid then blow her eligibility with a sudden influx of income from the sale. And no post-caregiver agreement to reimburse you for caregiving after the fact to reduce the profit on the RM sale. Those have to be in place before caregiving, not after the fact creative accounting.

Part 2: your mom has a RM. All mortgages are “secured” lending, which means if you default in any way with the terms of the loan, the lender can call in the loan & foreclosure on property. The property is “securitized” to the loan in the lenders favor.

For traditional mortgages, it’s done through foreclosure as you don’t actually own home but own your equity share based on your mortgage payments. Usually it’s triggered by not paying 3 mos of mortgage payments. And owner can get evicted and lender has a IRS filed 1099-C to you for all the balance of mortgage written off plus all interest, fees,whatever else lender can tack onto foreclosure costs.

For RMs it’s somewhat different as your mom has strict things she needs to do to have the RM exist. You need to carefully read her RM agreement to see exactly what her terms are. It’s something to review with her atty. AND IN ADVANCE OF HER Medicaid application.

For RMs, mom has to live in the home and any change in residence means out of compliance with RM within whatever timeframe in her RM contract. By submitting application for LTC NH Medicaid she’s moved as of that date. 

So whatever RM needs to be done now before she moves and she - as she not you - as the borrower has to deal with the RM lender. If mom has dementia or is not tippy top competent, she can’t imo realistically deal with the RM, her atty needs to do this as her agent. Plus she has the additional layer that you want to get her RM cancelled with a release done so it can be transferred and titled to you. All this has to get properly recorded at the CH which the atty can do.

Whether feasible to buy your mom’s home & potential Medicaid issues depends on:
- her RM contact and what she has borrowed so far 
AND 
- your ability to get a mortgage 
AND 
- what the FMV of the property is. 
You need to find out what type of RM and balance due at a future set point. A line of credit RM, imho, will stand a better chance of working in family’s favor IF she hasn’t taken out all the $. Family can buy home at 95% of what the RM is owed & it’s - I think - got to be done within 90 days of move out / cancellation. Whether it’s an issue for Medicaid imo would be IF the property has a value over the 95%. Cause the excess is gifting of an asset of mom’s to you. Yeah it’s confusing, like beyond confusing. The atty - if worth a flip - will have suggestions as to deal with property value to have it perhaps work in your favor if Medicaid gets huffy.  BUT onto what might be the biggest hurdle... you haven’t worked in 8 years, right? So what is your verifiable income source? To get a traditional mortgage you have to be creditworthy. Unless you have a income source or maximum SS ($2589/65 or $3698/70), your going to have to speak to a lot of lenders as you’ve got squishy credit as no recent paid work history. Your a risk & how banks deal with this is either they won’t or it’s got to be a conventional mortgage.  I’d bet the lenders would steer you to a conventional mortgage and those require 20% - 30% down payment. They will likely use the tax assessor value of the home for % determination. Not the RM 95% balance.  You might have to talk to a lot of lenders at various banks or credit unions to get a a low 3%-5% downpayment FHA type of mortgage. You may need to find a co-signer who has stellar credit and a solid job to get a mortgage. 

For RM how foreclosure is done is slightly different than a traditional mortgage cause mom does own the home but she has a loan (the RM) based on her home ownership. It’s still foreclosed but if it sells for less than RM, not mom’s problem. If It it actually sells for over RM owed (likely not happening, it’s more probable that I’ll get back into my size 8 wardrobe, rotflmao) it’s income paid to mom. And as it’s income will affect her Medicaid eligibility. Yeah thats beyond fun.... Most RMs never ever sell for beyond what the RM is owed as they can attach whatever done to make property “market ready” onto the tally.

Overwhelmed? Yeah I understand..... so imho, first things first is get out the RM and do your best to figure out what mom’s owes & so what the 95% will be that you will need to come up with. Then second find last tax assessor bill to figure out what house is “worth” and 3rd what % of its “value” do you right now have of your $ to use to get a mortgage. Then schedule a NAELA or CELA level elder law atty appointment for your mom to see what is feasible based on the first 3 and how Medicaid runs in your state. 

Please let us know what happens. Good luck, stay organized and try not to get too too overwhelmed. Family & heirs can deal successfully with RMs, Medicaid, MERP etc but you have to have a plan and be a bit of a pit bullie determined to carry out the plan.

Barb is spot-on that your mom & you need to speak with an elder law attorney. But there’s some things I think you should mull over & do in advance to get a somewhat clearer picture of just what your mom’s situation may be & the feasibility of your ideas.

To me Medicaid’s family caregiver “exemption” scenario is filled with promise and fraught with issues in making it a reality, then added atop this for you is your mom has a RM, which is a lil’ cluster all on its own.
First a bit of background.... and this is gonna be long so get a drink!
1. - Medicaid by & large for all states allow an elder who has a home to have that home be an exempt asset for their lifetime. Having home transfer from exempt asset of the elder to a ownership of the family member with caregiver exemption will be dependent on whether your state allows for this to be done BEFORE their death. YOU NEED 2 FIND IF YOURS DOES. It is usually upon death that the property goes to asset of their estate with caregiver exemption filed as an after death action. 
2. - LTC Medicaid requires mom to do a copay of all her monthly income to the NH. Mom will have none-nada-zero of $ to pay on house anymore due to copay required. She’ll have just the monthly personal needs allowance that your state sets. (For my mom in TX it was $60 a mo and realistically maybe covers beauty shoppe visits and some toiletries replacement). So if mom wants to keep house and family want to have this happen, then family will have to pay all property costs from day 1 of Medicaid till beyond death till working it out with MERP &/or opening probate. All property costs - taxes, insurance, utilities, etc. - all fall to family to pay. 
- if property is empty, some states allow for all reasonable & documented property costs paid by family to be deducted from the Medicaid tally. TX allows for this. But if family is living in the home, there are no deductions for property costs. 

For families, imo, the biggest obstacle is that they cannot afford their parents home and if there’s multiple heirs not all will pay property costs. If family or heirs do not live in the home it’s like paying for a 2nd home till whenever but without guaranteed ownership so runs risk. If family/ heirs live in the home, and have been using mom’s $ to keep household afloat, any financial support provided by mom from her income /assets will not be there anymore. 

So can you afford all on mom’s house till forever if need be? 

3. Medicaid’s “caregiver exemption” - if elder -owing a home - has their live-in child be their caregiver for at least 2 years full time with documented care needed then Medicaid usual allows that upon the parents death for that caregiver child -upon request to the state or its estate recovery outside contractor for MERP and with documentation - to have any Medicaid lien/claim released by the state. So caretaker child can fully inherit house as per their parents will. 

If your state sticks to this rule, then you cannot get exemption till after death. 

If your state actually allows for caregiver exemption to be done in tandem with Medicaid application, imo, you need an atty to shepherd mom’s application and your caregiver exemption. It is not a DIY. 

3b. There are all sorts of other exemptions and exclusions to MERP too. Low income heir, hardship exemption, cost-effectiveness of recovery. Some state have a baseline for property costs in order for state to actually go after a recovery. A lot depends on your states laws as to property rights and probate as to just what can happen. For most of us, we need an atty to get through the process. 

This are all issues for a parent who owns their home then goes onto LTC Medicaid & kids who would like to inherit property as per their parents valid will. Which are mucho importante BUT you have the additional layer of problems of which is there is secured lending on the house due to the mortgage. Post #2 to follow on my thoughts on that.... and get another beverage. 

Get yourself to a certified Eldercare attorney.

If you can show that you have cared for your mother for a certain amount of time at a certain level of need, there are generally exemptions in Medicaid law that will allow you to stay in her home even after she enters a Medicaid facility.

Too complicated to explain. If we're lucky, Igloo will chime in and tell you how this works. Not Diy and not your cousin the lawyer.