Reverse mortgages are not always what they seem

(Updated at 1:20 p.m.)

Sunday's column -- about tears and sneers over apparent dog abandonment in Haddonfield -- contained a line about a homeowner taking out a $500,000 reverse mortgage on a house valued at just $245,000.

I used the word "puzzling" to describe the disparity. This morning, a reader provided some clarity.

Joe Kiefer has spent three decades in real estate, serving as president of the Camden County Board of Realtors and as a title insurance expert. For the past half-dozen years, he has specialized in reverse mortgages at a Cherry Hill firm with a cheeky motto, "Let the gray haired guys work for you."

Given the advanced age (late 80s) of the owner in my column, Kiefer says she would have been eligible to take out roughly 70 percent of the $250,000 appraised value of the house. So she likely received about $140,000, either in a lump sum or regular disbursements.

Kiefer explained that reverse mortgages are recorded twice, once for the lender and once for the FHA, which insures the loans. Thus, a $250,000 reverse mortgage would show up in public documents as a $500,000 transaction.

Reverse mortgages, he explains, work on the premise that an elderly homeowner can extract equity for immediate or long-term use. The terms are good until the owner leaves the home or dies. "So if she lives to be 103," he explains, "she's going to owe a heckuva lot more than the $140,000."

The deals can be great for some seniors but nightmares for others, as the New York Times explores in a piece that focuses on fraud and confusion that permeates the industry.

Ideally, a house would appreciate in the ensuing years, with new equity covering the interest on the loan. But the woman in my column died two years later, leaving behind a home neighbors say has been deteriorating for years and may not have held its value.

"The heirs don't get saddled with the debt. The FHA does," Kiefer explains. "If it’s a knockdown, they’re going to lose their shirt.”

-- Monica Yant Kinney