Readers want to escape their reverse mortgages

If you are skeptical of the financial advisers I quoted a couple of weeks ago who urged caution with respect to reverse mortgages, perhaps you'll believe readers who have had problems themselves.

By way of review, a reverse mortgage is a financial product that lets you borrow money against the equity in your home. You don't have to make payments, but interest is going to accrue, eroding your equity over time.

In a recent column, Roger Smedley and Sharla Jessop of Salt Lake-based Smedley Financial Services said people should consider a reverse mortgage only as a financial last resort.

And based on an e-mail I received from Blaine, I think he would agree. He wrote to me for advice about a condo that his aunt left to him and some other relatives.

"The condo had a reverse mortgage she took out in 2001 for $100,000, which was $106,000 after commissions," Blaine wrote. "With interest, the loan is now over $116,000. She took out the mortgage and invested $100,000 in an investment which turned out to be a scam and lost it. . . . Yes, we now own a condo with over $110,000 debt, and (the) condo (is) worth maybe $125,000. The Realtor wants 7 percent, and other costs we will probably have to pay out of our own pocket or let the mortgage company take the condo."

Doug appears to be in an even stickier situation. His e-mail said he suggested to his in-laws that they take out a reverse mortgage a few years ago to augment their income and help pay bills.

"They weren't in debt but were unhappy with how tight things were," Doug wrote. "So, a reverse mortgage was started."

Since then, Doug's father-in-law has died, and his mother-in-law no longer feels like she needs that extra income.

"Her three daughters, one of whom is my wife, may hold me responsible for tying up the homestead and/or consuming all of the equity through this reverse mortgage," Doug wrote. "Can one stop the reverse mortgage without suddenly incurring a payment in the opposite direction? My mother-in-law doesn't feel the need for the reverse mortgage payment but wouldn't want a mortgage payment to make either.

"I guess an even more fundamental question is whether or not the agreement can be terminated and what financial impact that decision would precipitate? What should I recommend to them or how should they be advised so I don't become the fall guy?"

This would seem to be a delicate situation, but when I called the folks at Smedley for some follow-up advice, Sharla said Doug's situation isn't all bad.