Olson Law’s Attorney Letter
The Olson Law Firm, LLC Olsonlawfirm.net 866-711-8833 Fall 2008, Vol. II, No. 4
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Reverse Mortgages: An Overview
A “reverse” mortgage is a loan against your home that you do not have to pay back for as long as you live there. With a reverse mortgage, you can turn the value of your home into cash without having to move or to repay the loan each month. The cash you get from a reverse mortgage can be paid to you in several ways: all at once, in a single lump sum of cash; as a regular monthly cash advance; as a line of credit account that lets you decide when and how much of your available cash is paid to you; or some combination of these payment methods. obligations may trigger a default on the mortgage, requiring repayment from the borrowers. In order to be eligible for most reverse mortgages, you must be at least 62 years of age and you must be able to provide proof of home ownership. Typically, a homeowner applying for a reverse mortgage will not have any other mortgages against the property (there are limited exceptions). Also, there is no minimum income needed to qualify for a reverse mortgage because there are no monthly repayments. It is very important to realize that the amount of your debt increases over time, while your home‟s equity interests decrease over time. If the loan is carried for a long period of time, there may not be any equity left in the house. This is also true if the home‟s value decreases. However, a lender may not recover any more than the value of the home upon repayment. Therefore, you will never owe more than what the home is worth. You need to be aware that there will be fees associated with the loan. While these costs may be added to the loan balance, they must be paid back, plus interest, at the time the loan is repaid. Also, interest rates and closing costs on home loans may affect the amount of the loan. Generally, the amount will depend on the homeowner‟s age and his or her home‟s value. An older client with a more valuable house will be able to receive more cash than a younger client with less equity in his or her home. The only reverse mortgage that is insured by the federal government is the Home Equity Conversion Mortgage (HECM). These loans are insured by the Federal Housing Administration (FHA), a part of the U.S. Department of Housing and Urban Development (HUD). These HECM loans are known to be less expensive than privately-insured reverse mortgages as the interest rates tend to be more competitive. To be eligible for a HECM loan, the applicant must be age 62 or over and live in the home as a principal residence. Also, the residence must be a single-family dwelling, a condominium, or a part of a planned unit development. The home must meet HUD‟s property standards; however, the HECM may be used to pay for any necessary repairs. Finally, an applicant must consult
No matter how your loan is paid out, you typically don‟t have to pay anything back until you die, sell your home, or permanently move out of your home. To be eligible for most reverse mortgages, you must own your home and be 62 years of age or older. The purpose of a reverse mortgage is different from that of a traditional “forward” mortgage. The purpose of a forward mortgage is to purchase a home; the purpose of a reverse mortgage is to get cash from your home. In a forward mortgage, your loan balance (the amount you owe) gets smaller with each monthly payment to your lender. With a reverse mortgage, your loan balance (debt) rises each time you get money from the lender, as interest is added to the outstanding loan balance, and you make no repayments to the lender. Unless the home‟s value grows fast, the loan balance starts catching up to the home‟s value. So reverse mortgages are typically “rising debt, falling equity” loans. Reverse mortgages come in several shapes and sizes, but there are similarities among them all. The home remains titled in the name of the owners and the responsibility of maintaining the property, paying homeowner‟s insurance, and property taxes continues to lie with the owners. Failure to live up to these
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Olson Law’s Attorney Letter – Olsonlawfirm.net, 866-711-8833
with a counselor from a HUD-approved agency before the loan will be approved. You should honestly assess the need for a reverse mortgage. Unfortunately, it can be a very expensive way to make purchases or investments, particularly when other options are available. Are you a candidate for a home equity loan or a home equity line of credit? Is selling your home and moving into less expensive home an option? Do you need the equity in the home in the future? Sadly, you need to be wary of third parties who urge you to use a reverse mortgage to purchase goods and services. Unfortunately, this tactic has been used to financially exploit the unsuspecting.
Finally, you might want to consider what the impact of a reverse mortgage will be on family members. After a reverse mortgage is repaid, there may be little left for heirs. However, children of elderly parents are often supportive of their parents‟ ability to remain selfsufficient and in their own homes. For the right reasons, a reverse mortgage can be an effective planning tool.
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Client question: What is the worst type of residential real estate to purchase taking into account post-closing costs and future financial risks?
I get asked this question all the time, particularly at the monthly first-time homebuyer seminars where I speak. Let me first say obviously there are some important non-legal issues to take into account like whether or not you‟re going to like a particular home. I‟m not suggesting that you go buy a home that you hate just because it might not be the most risk averse option; I do want you to like this home that you might be living in for the next 30 years! That said, as a lawyer trying to protect a client‟s interest, I believe that a new construction, condominium is the most risky type of property to purchase. The reasons? Underfunded condominium associations and lingering construction defects that get passed on to unit owners post-closing. First, condominium basics, when you own a condominium you own two things: your individual unit (from the wallpaper in) and a percentage interest in the condominium association‟s common elements (hallways, garages, stairways, elevators, ect.). Your individual unit will be your responsibility but the common elements are funded by your monthly assessments and are managed by the condominium association‟s board of managers. A poorly funded condominium association is one reason why a new construction condominium is a risky purchase. Let me compare a well-managed, established condominium association with a new construction condominium. An established condominium association has been receiving monthly assessments of on average some $250 from every unit owner for many years and should have significant association reserves or condominium savings. For example, I personally live in a condominium building with 21 units and our association has over $250,000 in savings. I recommend that a condominium association should have at least $10,000 per unit in its association reserves. By contrast, new construction condominiums generally under-fund their associations up front resulting in little or no condominium reserves. This is what happens, a condominium developer is required to pay assessments on units it owns once the first unit in a development has been sold. To keep its costs down, developers set initial assessment levels artificially lower. I typically see these new construction condominium assessments at under $100 per month and sometimes developers fail to pay assessments on the units they own since they still control the association. Either way, what ends up happening is that the association is able to save very little money. Then, a couple years down the road, when the condominium association is “turned over” from the developer to the new unit owners association, maintenance of the condominium association‟s common elements becomes necessary and there‟s no money. That‟s when expensive special assessments become necessary. I see more large special assessments occurring in new construction condominiums than anywhere else. Plus I‟ve also seen many big-ticket construction defects that come to light shortly after a developer has turned an association over to the new owners. And then they‟re stuck having to litigate which becomes time-consuming and expensive. If you like new construction housing fine, but why not protect yourself by buying a condominium that‟s 5-7 years old or so. Then you can have greater assurance that the condominium association is in good financial condition saving you money down the road! P.O.
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*Email your questions to Diane at dbloch@olsonlawfirm.net for future newsletter issues.* **DISCLAIMER: Actual resolution of legal issues depends upon many factors, including variations of facts and state laws. This newsletter is not intended to provide legal advice on specific subjects, but rather to provide insight into legal developments and issues. The reader should always consult with legal counsel before taking action on matters covered by this newsletter.
Case law update – October 2008
_____________________________________________________________________________________________ In re Estate of Hale, No. 1-07-2536, 1st District (June 30, 2008). Trial court erred when it limited the claimant's custodial care claim to three years prior to the death of decedent; because Section 18-1.1 of Probate Act has no time limit, except that claimant must have cared for decedent for at least three years. Further, time limit for custodial care claim does not begin to run until death of decedent. Trial court should have considered entire nine and a half year period that claimant took care of her mother; and should not have offset her claim by the money that she received for acting as guardian. How might this apply to you? The Illinois Probate Act allows the spouse, parent, brother, sister, or child of a disabled person who dedicates himself to the care of the disabled person by living with and personally caring for the disabled person for at least 3 years to make a claim against that person‟s Estate upon the death of the disabled person. This part of the Act attempts to compensate a person who has given up employment opportunities and faced the stress of caring for a disabled relative by letting that caregiver get paid from the Estate of the now deceased disabled person. This case held that there‟s no limit as to the period of time a court should consider when awarding compensation. Something to keep in mind if you‟re the relative doing all the work and now postdeath everyone‟s trying to get their money too. C. T. A. S. S. & U. Federal Credit Union v. Johnson, No. 1-07-1828, 1st District (June 30, 2008). Section 2-301 of Code of Civil Procedure, providing that Defendant waives defects in personal jurisdiction, unless they file a motion attacking it in first motion filed, does not apply retroactively to validate a judgment entered without personal jurisdiction. Therefore, even though defendant filed emergency motion to vacate sheriff's sale of their property before filing motion attacking personal jurisdiction, because private process server served summons before being appointed by the court, a defect apparent from the record, the trial court correctly concluded that all of its orders were void and vacated judgment and sale. How might this apply to you? Non-lawyers oftentimes misunderstand the critical importance of properly serving a defendant in a case up front. If a defendant isn‟t served properly up front, everything that happens in a case is void and can be attacked later on. We‟ve been on both sides of these cases seeing 18 years of back child support get wiped out because of improper service and parties getting “undivorced” after 20 years of thinking they were divorced all due to improper service on a defendant at the start of a case. In re Custody of M.C.C., a Minor, No. 1-08-0203, 1st District (June 27, 2008). Trial court correctly concluded that maternal grandmother, with whom child and his mother resided until her sudden death, lacks standing to seek custody of her despite physical possession of child at time of filing petition. While mother and child resided with grandmother, mother was the custodian; there is no showing that mother or father ever voluntarily relinquished custody; and father filed timely petition for custody less than a month after mother's death. How might this apply to you? This case involves one of the many tricky issues associated with Grandparent custody and visitation of children. These issues are probably some of the most ever-changing matters of law in Illinois. The case above dealt with the issue of when a grandparent even has the right to ask a court for custody (standing). The only way this right even arises is if a child is NOT in the custody of either of the child‟s two natural parents. Grandparent custody and visitation cases are very involved and difficult to win.
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Olson Law’s Attorney Letter – Olsonlawfirm.net, 866-711-8833
DeVore v. American Family Mutual Insurance, No. 2-07-0154, Second District, (June 24, 2008). Trial court did not err when it granted summary judgment to defendant, insurer, which denied plaintiff's claim for remediation of mold damage to their home. Even though mold resulted from a covered event, the insurance policy‟s language specifically excluded mold damage regardless of it source. How might this apply to you? The main issue is to be aware of the limits on your homeowner‟s insurance coverage. Some of the common exclusions are mold, flooding, and wind damage. For example, homeowner‟s in areas susceptible to hurricanes should have 2-3 different types of insurance on their home beyond your “standard” homeowner‟s policy. In re Marriage of Takata, No. 3-07-0175, Third District (June 12, 2008). Trial court erred when it denied motion for turnover order of father's current wife's 401K account to satisfy judgment against father for child support arrearage. Funds in account are marital property, having been accumulated during marriage between father and his current wife; and are not exempt from collection for child support judgment. How might this apply to you? This was an interesting case concerning child support collection. Generally speaking, if a person is behind in his child support obligation, anything he owns is subject to attachment in order to collect child support; real estate, pensions, wages, IRAs, ect. The case above is unique in that the custodial parent was able to collect against the non-custodial parent‟s new spouse‟s IRA because this was so-called “marital property.” In re the Marriage of O'Daniel, No. 4-07-0250, Fourth District (June 2, 2008). Trial court did not err when it refused to include distributions from former husband‟s IRA as income for purposes of child support calculations. Only portion of IRA that might be considered income is that part that represents earnings on deposits; and former wife failed to present any evidence showing portion representing earnings. Further, trial court could properly treated revenue from rental property, retained by former husband‟s business partner as payment for downpayment advanced by him as Section 505(3)(h) deduction. This case exemplifies the critical importance of using caution when considering whether or not to execute a Voluntary Acknowledgement of Paternity in situations where parents or potential parents are not married. Because once signed, whether mother or father, a critical and expensive 23-year relationship has begun. A party can only challenge an Acknowledgement within 60 days of signing, unless there‟s been fraud or duress related to the signing which is very difficult to prove. People ex rel Sussen v. Keller, No. 4-07-0704, Fourth District (May 7, 2008). Trial court‟s findings when making decision on motion for Section 513 educational expenses, that child‟s choice of out of state post high school technical school for automobile repair is reasonable, is against the manifest weight of the evidence, since respondent presented evidence that an adequate less expensive local school was available and there was no evidence in the record to demonstrate that child‟s choice was a superior program. However, trial court‟s determination that respondent, who earns $22,000 per year, could
How might this apply to you? Child support is generally based on some percentage of the non-custodial parent‟s “net income.” However, net income is not defined in the Illinois child support statute and therefore it‟s often fought over. One good guide is to consider what the IRS considers income. This isn‟t a perfect analogy but things like profits, dividends, and interest off investments generally are income for child support purposes. In re Parentage of G.E.M, No. 3-06-0848, Third District, (May 27, 2008). After plaintiff, mother, and voluntary father executed Voluntary Acknowledgement of Parentage after birth of child in 1995, and DuPage County Court entered order declaring him the father of the child shortly thereafter, DuPage County court lacked subject matter jurisdiction, five years later, to grant mother's motion to vacate all prior orders of parentage and support. Voluntary acknowledgement of parentage properly executed can be rescinded only within 60 days or by petition of father alleging fraud, duress or mistake. Therefore, Will County court erred when it denied genetic father's motion to dismiss subsequently filed Parentage Act complaint seeking to declare him the legal father of the child and for support. How might this apply to you?
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Olson Law’s Attorney Letter – Olsonlawfirm.net, 866-711-8833
afford to contribute one third of expenses for school, transportation and lodging is not against manifest weight. How might this apply to you? Post high school educational expense cases give tremendous discretion to the Court because the statute is vague. Generally, courts look at the income of both parents at the time a child is of college age in dividing up college expenses. In terms of which college a child can attend, other than in extremely high income cases courts are going to require that a child attend the junior college in whose district they live or a state four-year school. And if the child wants to do otherwise that‟s fine, but the parents‟ court ordered contribution will generally be capped at the state-school or in-district amount. In re Estate of Trevino, No. 2-07-0503, Second District, (April 7, 2008). Former wife‟s life insurance policy, which was benefit of her employment, was governed by provision in marital settlement agreement requiring both parties to “maintain the children of the parties as the beneficiaries of any and all retirement plan[s], pension plans, and death benefits.” Therefore, after her death, probate court correctly interpreted Marital Settlement Agreement when it imposed constructive trust on proceeds of policy in favor of guardian of parties' children, even though former husband remained listed as the beneficiary. How might this apply to you? We see these cases all the time. Whether a divorce or parentage case, it is nearly ubiquitous that each parent must get a life insurance policy with the children named as the beneficiary on said policy. And no surprise, what often happens is the parent either doesn‟t get the policy all together or, like in the case above, the mother failed to change the beneficiary name from her now ex-husband to her kids. Generally the kids eventually win these cases but not without a lot of litigation. Make sure your and the other parent‟s life insurance policy is in place and the proper beneficiaries are named! MD Electrical Contractors, Inc. v. Abrams, No. 104000, Second District, (April 3, 2008). Appellate court correctly concluded that Home Repair and Remodeling Act does not apply to sub contractors. However, because issue of whether plaintiffs are foreclosed from any remedy except for that provided by Mechanic‟s Lien Act was not properly raised in defendant‟s petition for leave to appeal; and will not be considered. How might this apply to you? We don‟t litigate this type of case too often but it‟s important to know of some consumer protections contained in the Illinois Home Repair and Remodeling Act. If doing work charged for more than $1,000, contracts must: provide a written and signed contract and the consumer must be given the „Home Repair: Know Your Consumer Rights‟ pamphlet prior to the execution of any home repair and remodeling contract. Just something to keep in mind if you don‟t like some work that‟s done and now the contractor is demanding payment. In re: A. S. B., a Minor v. Templeton Sterling Bishop , No. 4-07-0911, Fourth District (March 28, 2008). Trial court lacked jurisdiction to terminate respondent‟s parental rights absent a petition for wardship pursuant to Juvenile Court Act or a petition to adopt pursuant to Adoption Act. How might this apply to you? We get asked all the time in situations where parents don‟t get along, “Can I terminate his/her parental rights?” Yes, but generally only if there‟s another parent in place ready to adopt the child or become a foster parent. Illinois law sets forth only two ways to terminate parental rights. The first is generally brought by the State in abuse situations. This is when kids often end up in foster care. The second is more commonly brought by a private litigant. This might be a scenario where one parent gets married and now his/her new spouse wants to adopt the child. As part of the adoption process, one of the first steps is to find the other parent unfit and to extinguish his/her parental rights. In re the Matter of the Estate of Light, No. 3-070688, Third District, (September 5, 2008). Trial court correctly construed bequest in will, which gave certain dwellings owned by her and “the contents thereof, all personal and chattel property,” to include only tangible personal property and not securities reflected by stock certificates found in one of the dwellings.
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How might this apply to you? This case is primarily a reminder that you must make sure your Will is clear and ask questions if something looks fishy. Here the decedent‟s will gave her two homes along with “the contents thereof, all personal and chattel property” to two people. But the recipients claimed that they were also entitled to various stocks and investments because there were account statements and stock certificates in the home too. The Court said personal property and chattel are NOT investment securities. Make sure your Will is clear!
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