Why EVERY Attorney Needs to Know What HECM Means
We all understand that attorneys come in many different flavors.
There are all different kinds of lawyers. There are divorce lawyers, bankruptcy lawyers, estate planning attorneys, tax attorneys… and the rest. And if you’ve ever asked one kind of lawyer about another area of the law, then you already know that they don’t know the answers to whatever your questions were.
But, all lawyers are also all the same in one way. At their core, they’re all problem solvers.
Want to know why I say that with such confidence? Because no one in the history of the world has ever gone to an attorney when they didn’t have a problem. No one ever wakes up on a day when life is going along just fine and says, “Hey, let’s go see a lawyer.”
Never happens, and that’s why I say that although they may all specialize in solving different sorts of problems, they are ALL problem solvers.
Well, if you’re a lawyer and therefore a problem solver, then you need to know what HECM means. And I’ll go even further… to not know could be a real disservice to your clients.
Why? Well, I’ll tell you…
HECM stans for Home Equity Conversion Mortgage and it’s the acronym for the government’s federally insured reverse mortgage program. It’s a program that has changed dramatically over the last few years, so chances are you aren’t familiar with the program today.
The HECM is unique because it allows homeowners to borrow money without having to make any payments on the loan until they die or sell the home. They still have to pay their property taxes and insurance, but they are never required to make a monthly payment on the loan.
That makes the HECM unique. There’s nothing else that allows what the HECM does, and therefore it can be used to solve problems in unique ways.
If you reduce it to its most basic function, then the HECM is simply a source of capital… available tax-free… at a relatively low interest rate… that doesn’t have to be repaid on any certain schedule other than death or sale of the home. There’s simply nothing else like it.
Think about it this way…
What if you had an Uncle Hecm. And he told you that he’d be willing to loan you say $200,000, at a relatively low interest rate, like 5%… and you wouldn’t have to make any payments until you either died or sold your home. What could you use that money for? Anything, right?
You could use that money to start a business. You could use it to consolidate debt or payoff student loans. You could use it to buy a second home or maybe a motorhome. You could use it to pay capital gains taxes… or settle a lawsuit. You could use it for absolutely anything.
Who wouldn’t want an Uncle Hecm? The answer is no one.
The thing is that I’ve interviewed a couple hundred attorneys on this topic and none had any idea how the HECM worked or why it can be so uniquely important to solving certain problems. And that’s not right. Every lawyer should at least know the basics of what HECM means.
Let me give you a couple of examples…
DIVORCE. You’re a divorce lawyer and your client is getting divorced in his or her 60s. The wife wants to keep the home, but the husband wants his half of the equity. However, the wife can’t qualify to refinance the home and pay him off, so all too often the home must be sold so she can pay him his half.
Now enter the HECM. The wife can use the HECM to pay-off her ex-husband and remain in the home forever without having to ever make a payment on that loan. Of course, she can make payments whenever she wants to, but she never has to. So, the husband gets his money and she has the house for life. It turns a lose-lose scenario into a win-win… and nothing else will do that in that situation.
Here’s another example… You’re a bankruptcy attorney and your client has filed Chapter 13 after falling behind on mortgage payments. They have a repayment plan that allows them to repay the amount owed over five years, but after two years of making their payments on time, they qualify for the HECM. If the HECM will pay-off their mortgage, they can get out of the bankruptcy sooner and start rebuilding their credit. And again, they will never be required to make a monthly mortgage payment on that loan.
Qualifications. Compared with other loans, qualifying for the HECM is easy. There’s no credit score requirement and most people on Social Security qualify. It’s nothing like trying to qualify for other mortgages or personal loan products… it’s much easier.
Or, let’s say you’re an estate planning or tax attorney and you have a client who sold a home and owes a bunch in capital gains. Instead of pulling that money from a retirement account, where the amounts taken would be taxable, you could see if that client can use a HECM to get the money they need to pay the taxes… and then they can repay the amounts borrowed over time… or not until they die or sell their home.
There’s really no limit to what you can do with a HECM mortgage. And what you can do with a HECM, you can’t do any other way.
Plus, reverse mortgages in general have changed dramatically over the last few years and even in the last few months. Today, there are reverse mortgages that go up to $4 million homes. And there are also new reverse mortgage products that don’t have any closing costs to speak of. If you haven’t looked into HECMs or reverse mortgages for years… you can’t possibly know much about them… and as a lawyer, you should.
The basic qualifications for a HECM are that at least one of the borrowers be at least 62 years of age and own a home with 40-50% equity. That’s pretty much it. Well, you do need to be able to pass a very basic financial assessment, which is just there to make sure that you’re able to pay your property taxes, insurance and basic maintenance, but like I said above, most people on Social Security qualify.
I’ve had several attorneys tell me that it’s not their job to know about such things, but I think that’s wrong. If your job is to solve problems then I think it is your responsibility to know about the tools that help solve problems in unique ways… and the HECM is at the top of that list.
So, to become more familiar with the HECM and other reverse mortgage products… and how they can be used to solve all sorts of client problems, here’s what I suggest you do…
Email me at mandelman@mac.com.
I’ll send you a FREE COPY of: “The 37 Questions Lawyers Ask About Reverse Mortgages,” It’s a straight forward Q&A of the most important questions other attorneys have asked me over the last two years about the ins and outs of HECMs and other reverse mortgage products… along with their answers.
I’ll also send you the paperwork involved with a HECM so you can review it carefully it before you recommend that anyone else does. There’s nothing tricky or secret about a HECM mortgage product. It’s an FHA insured mortgage, just like other FHA insured mortgages… it’s regulated by HUD and was made possible by Congress.
Send me an email and get your free copy of “The 37 Questions Lawyers Ask About Reverse Mortgages.” The HECM is important for a lot of reasons and all attorneys should know why. Email me today at mandelman@mac.com. Or, you can call me at 714-488-5099.
Mandelman out.