What’s Left of Tax Deferrals for Reverse Mortgage Borrowers?

Not much, is the short answer.

For reverse mortgage borrowers in Oregon who were previously enrolled in the state’s tax deferral program for low income seniors, they suddenly became disqualified this fall with changes to the program.

In its announcement of cutting the program, the state noted that the deferral program recovers funds from the sale of properties that leave the program, but that if there is no equity left in the home, there may be no way to pay back those deferred taxes. Thus, the program is less available for the people who need it, it said.

With Oregon calling it quits on tax deferrals used in conjunction with reverse mortgages, it narrowed further the number of states that allow for both.

Previously, California offered tax deferrals for seniors, but cut that program in 2009. Currently, Massachusetts still allows for both.

Reverse mortgage borrowers in the state can do both, with lender approval, the state Division of Banks confirmed with RMD, but seniors are generally encouraged to consider the tax deferral as an alternative to (rather than in addition to) a reverse mortgage.

In an economy with increasing home values, the state still has a good chance of recouping its investment on both the deferred tax (plus interest) and on the reverse mortgage, but in light of the housing crisis, negative equity and putting off loan interest in addition to taxes puts states in a potentially losing situation.

Written by Elizabeth Ecker

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