Reverse mortgages allow homeowners aged 62 and older to convert home equity into cash without monthly payments. While this can be a financial lifeline for seniors, it raises unique concerns for community associations, sometimes because they are using the funds to help support a life they otherwise could no longer afford.
Potential Issues for Associations
- Property Maintenance Risks:
Owners who take out reverse mortgages may eventually exhaust funds and neglect upkeep as they no longer have an investment in their unit or home. Associations have reported severe unit deterioration, pest infestations, and plumbing failures, leading to costly repairs borne by the community. Lenders rarely intervene when units fall into disrepair. - Delinquent Assessments:
Borrowers must still pay taxes, insurance, and association dues. Failure to do so can result in foreclosure, creating legal and financial headaches for the association. Income from reverse mortgages can help fund these costs for a period of time, but, not forever. - FHA Approval Requirements:
Most reverse mortgages are FHA-insured. If the home is a condominium unit, the entire condominium project must participate in an extensive review of its operations, requiring detailed financial and insurance documentation.
Can Associations Restrict Reverse Mortgages?
Generally, yes—but only through an amendment to the declaration, not the rules. A restriction on reverse mortgages is considered a restraint on alienation, a fundamental property right, and may face strict legal scrutiny. So, the restriction must be carefully drafted by the association’s attorney.
Practical Steps
- Review Governing Documents: Confirm whether your declaration addresses mortgage restrictions. Amendments require owner approval and legal compliance.
- Educate Owners: Provide guidance on obligations under reverse mortgages, including dues and maintenance.
- Monitor Maintenance: Enforce maintenance standards consistently, regardless of financing type.
Bottom Line
Reverse mortgages can help aging owners stay in their homes, but they pose real risks for associations. Boards should balance compassion with caution—protecting the community while respecting owners’ rights. Kaman & Cusimano clients can contact our office to discuss amendment options. If your association is not currently a Kaman and Cusimano client and is interested in learning more about our services and how we can help, please click the following link: Request for Proposal and type “Reverse mortgages” in the subject field.
