Can We Turn Over Mom’s House to Reverse Mortgage Company?
My mother, who is 93, is in long-term dementia care. She has a reverse mortgage but due to her never receiving monthly payments, she qualified for Medicaid. It is now time to sell the house and pay off the reverse mortgage. The house was appraised at $240,000 in 2006 but would probably sell for no more than $170,000 now. She owes approximately $140,000. We realize Medicaid would get the remainder and that’s fine. The reverse mortgage company has given us two options, sell the house ourselves or surrender the house to them. If we did surrender, it is my understanding that they would get all the proceeds and we would not have to deal with repairs, realtor, etc. However, would there be a problem for us with Medicaid? I’m concerned that we would not be able to afford any repairs that may have to be made to sell the property.
The concern with Medicaid is that if you surrender the house to the reverse mortgage company, the Medicaid agency would consider the difference between the outstanding mortgage balance and the house value to be a disqualifying gift to the mortgage company, making your mother ineligible for benefits for a period of time. You would have to present them with information about the ultimate sale price of the house and any expenses the mortgage company incurred, such as costs of maintenance and repairs and the realtor’s fee, and it might be difficult to get that information. I think the best course would be to seek prior approval from the Medicaid agency. Explain the situation to them with evidence of the outstanding mortgage and a current appraisal or valuation by a realtor. If you get such prior approval, you will then have no risk that the agency would consider the transaction to constitute a transfer of assets.