# Reverse Mortgages - Pro's & Cons??



## Wolf mom

My neighbor just got one (she's 72) - she had to spin off a few acres around the house from the 75 she owns in order to do this. 
She had to get one as there was no money to pay taxes after her husband died and no homes are selling in this area - (she's had 10 acres [raw land] for sale over 4 years). New spec house next door with 2 1/2 acres has been on the market for 3 years.

To me, reverse mortgages don't sound like a good deal in the long run, but I guess in her case it was the only thing she could do. 

What are your thoughts on a reverse mortgage?


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## mekasmom

Wolf mom said:


> To me, reverse mortgages don't sound like a good deal in the long run, but I guess in her case it was the only thing she could do.
> 
> What are your thoughts on a reverse mortgage?


I"ve been curious about them too. They just sound kind of crooked to me. I don't know, but I am interested in the answers to this question. People are taken advantage of in so many ways, and these things sound crooked and just feel slimey when you see the commercials.


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## Micheal

In a recent article in "Money" mag (Dec issue) they infur that a reverse mortgage should be the "place of last resort" to find money.......
1. They mention age being a factor - "Borrowers who take out the loan too soon, or spend the payout to quickly, could end up without a source of equity to fall back on - and might even lose their homes."
2. Costs be more than you can afford? - "Reverse mortgages are a notoriously expensive way to tap equity." Examples: upfront mortage insurance, origination fee, traditional closing costs, and then there is a monthly mortgage insurance premium of 1.25% of the loan balance. Plus you still need to cover the regular housing expenses such as taxes, and maintance....
3. Look for a better option. - "It's best to get your heirs involved" - particularly since they'll be responsible for paying off the loan or selling the home to pay it off.....

(Note: the above info is from the article - not from me)

Me, personally something like this would truly be a "last ditch" thought on my part and then I would still NOT do it..........
As to your neighbor - hopefully she got some "good" advice before committing to this and just not postponing the inevitable.
But hey what do I know?????


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## SageLady

I would avoid it like the plague! Sounds like a bit of a scam to me, even though they promote it like it's a wonderful thing.


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## Haven

Wolf mom said:


> , reverse mortgages don't sound like a good deal in the long run, but I guess in her case it was the only thing she could do.
> 
> What are your thoughts on a reverse mortgage?


 Yea, they are a horrible idea unless you plan on dying in the near future and need the cash to live off of. Most people who do this are probably elderly...or very, very ummm ...not smart...


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## Shrek

General opinion around here by folks in the target age group who have researched them are that they are cons.


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## pancho

I especially like the one commercial that says you can use the money to fix up the house.


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## Shrek

My mother who is 66 and in the target group said while watching one of their commercials that she needed $8000 to do some repairs on her house but instead of a reverse mortgage she used just a portion of her equity to get a $10,000 loan for 10 years at less than $120 and she intends to make 26 payments per year as she gets two pension payments and her social security each month.

She said this way she should have the fix up mortgage gone in under 5 years and has 2000 dollars added to her savings also and she still has her house.

Then she smiled and said if for some reason she had to get that little mortgage loan off her farm she was coming looking for me because her and my father taught me the value of maintaining healthy equity and investments and they helped me when I was in a short term pinch when I was young so I can help her out if needed since we are older. I guess she does have a point even though when I heard through the local grapevine that she had taken out a small mortgage I had already decided to set aside some of the pasture lease income I get in case her mortgage was an adjustable rate one


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## sdnapier

Shrek said:


> My mother who is 66 and in the target group said while watching one of their commercials that she needed $8000 to do some repairs on her house but instead of a reverse mortgage she used just a portion of her equity to get a $10,000 loan for 10 years at less than $120 and she intends to make 26 payments per year as she gets two pension payments and her social security each month.
> 
> She said this way she should have the fix up mortgage gone in under 5 years and has 2000 dollars added to her savings also and she still has her house.
> 
> Then she smiled and said if for some reason she had to get that little mortgage loan off her farm she was coming looking for me because her and my father taught me the value of maintaining healthy equity and investments and they helped me when I was in a short term pinch when I was young so I can help her out if needed since we are older. I guess she does have a point even though when I heard through the local grapevine that she had taken out a small mortgage I had already decided to set aside some of the pasture lease income I get in case her mortgage was an adjustable rate one



You are a good person


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## ChristieAcres

If the Borrower is educated, has the loan paperwork reviewed, they can be a good thing. Only for the *select FEW!* I have good friends who obtained a Reverse Mortgage, having no other alternative but to lose their waterfront cottage.

1- They are in their 80s
2- Their income had dropped and they couldn't afford the mtg payments
3- They were faced with selling their home in failing health
4- They had equity, but not enough to buy another place, had they sold.

They applied for a legitimate Reverse Mortgage which accomplished the following:

A- $70,000 Cash to them
B- No more mortgage payments
C- They both live there until death
D- They are responsible for the taxes/insurance only
E- My friends are now living much more comfortably without the worries of before.

This enabled them to pay off debts, their vehicles, and have money in the bank. As a former Loan Officer for (5) years, I reviewed their Loan Documentation, then referred them to an Attorney, based on my concerns. The changes were made to the documentation and the Atty approved everything. Important to note? My friends have older adult children who aren't expecting to inherit from them. All of their children wanted them to be able to live there the rest of their lives.


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## pancho

80 years old and still with a house payment.
Someone didn't put much thought into getting old.


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## Nevada

A reverse mortgage is a good thing if the conditions are right and the money is put to good use. Right now wouldn't be a good time to do it, at least around here, because residential real estate appraisals are way down. Given 5 to 7 years for prices to recover, I'll look at my options.


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## Micheal

lorichristie said:


> They applied for a legitimate Reverse Mortgage which accomplished the following:
> 
> A- $70,000 Cash to them
> B- No more mortgage payments
> C- They both live there until death
> D- They are responsible for the taxes/insurance only
> E- My friends are now living much more comfortably without the worries of before.


Ahhh. and who is responsible for the maintenance and up-keep of the place????????


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## ChristieAcres

Micheal said:


> Ahhh. and who is responsible for the maintenance and up-keep of the place????????


They are, but some of the $ was used on their cottage. It has a roof that will outlive them, was completely remodeled, extra insulation installed, and all the appliances were replaced. The DH had health issues, which were resolved, and he is doing very well now. Any maintenance needing to be done, exceeding that guy's ability (not much does), my own DH can do for them. They also have grown children, capable of assisting, when needed.

Reverse Mortgages only benefit few people, as I posted. I am not in favor of them in most situations.


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## TnAndy

Wife and I are not to the age where we can take one out, but we may well consider one when we are.

Here's the deal. 

We have no kids, and nobody to leave our paid for place to.....so WHY take that equity to the grave, and/or leave it for what relatives we do have to fight over it later ??

As I understand them ( and I've only looked lightly ), you have a life estate.....they can't kick you out as long as you pay the taxes and insurance.....which you're gonna have to do ANYWAY, and you never have to make a payment.....

Way I see it, if I was NEVER gonna sell the place anyway, and some bunch is willing to part with 300k ( I ran the numbers thru a couple of the online reverse mortgage lender's calculations just now ), heck, WHY NOT ??

What's the downside in our case ??


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## ChristieAcres

I should add that although my friends are paying taxes/insurance, that is 20% of what is the current rent in our area.


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## Nevada

TnAndy said:


> Here's the deal.
> 
> We have no kids, and nobody to leave our paid for place to.....so WHY take that equity to the grave, and/or leave it for what relatives we do have to fight over it later ??


There are a number of ways to draw equity out of your house. Many people sell their larger homes for smaller homes, better suited for a smaller elderly household. Others buy similar homes in less expensive areas for retirement (a lot of people for Florida & California come to Las Vegas because it's less expensive). Others sell their homes to buy $400K motorhomes to go live the good life.

Reverse mortgages offer an opportunity to convert about 40% of the equity in a home into either an annuity (monthly income) or a lump sum distribution, without worrying about losing your home or creating a mortgage obligation. If you are interested in staying in your home then it's something to consider.


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## ChristieAcres

> *If you are interested in staying in your home then it's something to consider.*


My friends wanted to stay in their beautiful *waterfront cottage*, which is where they had chosen to spend the remainder of their lives. So, for 20% of the cost of renting an average home, they are living in their dream home. 

Good points on ways of taking out the equity, but in some cases, you can get a Reverse Mortgage, yet not be able to sell your home, netting the same amount (not in a depressed market).


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## Nevada

lorichristie said:


> My friends wanted to stay in their beautiful *waterfront cottage*, which is where they had chosen to spend the remainder of their lives. So, for 20% of the cost of renting an average home, they are living in their dream home.


The point is that with a reverse mortgage they could still only have to pay the 20% of the cost of renting, but get a few hundred dollars a month extra for the rest of their lives. They never have to pay it back, and they never have to move. The lender will take it our of the equity in the house after they are both gone.


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## ChristieAcres

They got $70K up front... Now consider what they could do with that. Where do you get a few hundred a month out of that, going from a $1,200/month to zero, with $70K up front, both in late 70s. They couldn't sell their home, so this was their only choice. Reason? Old pre-76 mobile remodeled radically into a cute little cottage by the owner before he almost died. Oh, the taxes and insurance were in addition to the $1,200/month. Last, but not least, and a bit amusing? The Reverse mortgage was granted on a property that can't be financed... Further, when my friends die, it still won't be able to be financed unless the cottage is torn down. The lot is waterfront, but I think they got the better deal (I ran the numbers for them myself). Now, in our current market, their property is worth 50% of what it was when they were granted that Reverse Mtg. Yes, they got it just after values began to decline, but before the worst of it hit.

In this case, it was truly a Reverse Mortgage or my friends would have lost their home! Their bank had called their mtg note (a balloon payment was due). Those liar loans were gone, so they no other options, but foreclosure. They asked for my advice on this, and they took it. Yes, they are very happy, living there, with such low expenses.


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## TnAndy

Nevada said:


> There are a number of ways to draw equity out of your house. Many people sell their larger homes for smaller homes, better suited for a smaller elderly household. Others buy similar homes in less expensive areas for retirement (a lot of people for Florida & California come to Las Vegas because it's less expensive). Others sell their homes to buy $400K motorhomes to go live the good life.
> 
> Reverse mortgages offer an opportunity to convert about 40% of the equity in a home into either an annuity (monthly income) or a lump sum distribution, without worrying about losing your home or creating a mortgage obligation. If you are interested in staying in your home then it's something to consider.


Yeah.....I understand the generic "many people" do this and that....

But in our case, we plan to die right here on the homestead we've spent 30 years building.....never downsizing, never selling, etc. Place is paid for, no kids to leave it to, don't really need the RM, but heck, I'm sure I could find something to have fun with 300k....might buy an airplane and learn to fly.....or a condo in Florida....and then take a reverse mortgage on it.....:grin:

And with no one to leave the place to, it appears to me a reverse mortgage is an excellent way to tap the equity we've built. 

And based on the numbers I plugged into a couple of online calculators, the percentage is 60%, not 40%. 

Regardless of the amount, *anything* we'd get would beat simply leaving it to lawyers and distant relatives to quibble over once we're gone.


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## jwal10

The place my brother bought and lives on was a reverse morgage property. He got it cheap as the former owner died very soon after he took it out. The hospital got paid for the 20 days he spent there and the Company then sold the property. Brother paid about half the real value, kind of like a fire sale. 

I think it would be an OK deal when used/done right as Lorichristie shows. Sounded like the best way for them. We have kids and what is left we want them to enjoy. We have split our assets up into smaller properties so all of us can enjoy them, together, before Sweetie and I are ready, or have to leave this orb....James


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## RDuke

Does anyone have PERSONAL experience with a reverse mortgage? Everything that I have read hear is that it was someone else or it was a friend or some people or many people.
I would like to know what the actual holder of a reverse mortgage has to say. Has it worked out like everyone hopes it will? It is not as good of an good idea now as it was hoped to be then? And etc.
Anyone?


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## po boy

TnAndy said:


> And based on the numbers I plugged into a couple of online calculators, the percentage is 60%, not 40%.
> 
> Regardless of the amount, *anything* we'd get would beat simply leaving it to lawyers and distant relatives to quibble over once we're gone.


 The actual % loaned depends on the borrower's ages and the zip code of the property. Look at it using a different age.

You do have the right idea.


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## po boy

I came up with 54% using my correct age and 51% using age 62

Calculator


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## RDuke

If I understand the .gov website information correctly the required fees/closing costs can be paid for out of the line of credit. That's a plus.
Now, assuming you have this line of credit established, is the total of this line of credit considered to be income and, therefore, taxable as income? Or is the money taxed as it is used similar to a 401? I don't know, I'm asking.


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## po boy

RDuke said:


> If I understand the .gov website information correctly the required fees/closing costs can be paid for out of the line of credit. That's a plus.
> Now, assuming you have this line of credit established, is the total of this line of credit considered to be income and, therefore, taxable as income? Or is the money taxed as it is used similar to a 401? I don't know, I'm asking.


 Click here.

Hope that helps


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## RDuke

OK, I've gotten some more information on reverse mortgages but I would still like to hear from someone who has actually gone through the entire process and has a story to tell, either good or bad.
As far as I know this is an idea that no one has ever taken advantage of OR no one has ever BEEN taken advantage of.
I'm still concerned about the wording of this information to include phrases such as: 'they usually', or 'this is generally'. That is not a confidence builder for me.


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## sleuth

Here's what Dave Ramsey has to say about the matter. Take it or leave it.

The Ugly Truth about Reverse Mortgages

How does a Reverse Mortgage Work?

Not Technically a Scam


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## Wolf mom

Nevada said:


> The point is that with a reverse mortgage they could still only have to pay the 20% of the cost of renting, but get a few hundred dollars a month extra for the rest of their lives. They never have to pay it back, and they never have to move. The lender will take it our of the equity in the house after they are both gone.


_For the rest of their lives??? _Only if they are in good health and die quickly. One of the downsides of reverse mortgages is that the income can bump you into an income bracket that negates any assistance in cases of need in old age. 
_A few hundred dollars a month??? _Will that cover in home assistance or a nursing home? 

Only the bank wins on this. That's why they were created.


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## Nevada

RDuke said:


> is the total of this line of credit considered to be income and, therefore, taxable as income? Or is the money taxed as it is used similar to a 401? I don't know, I'm asking.


It's tax free. I'm not sure about all state income taxes, but as far as the IRS is concerned it's tax free.


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## po boy

Wolf mom said:


> _For the rest of their lives??? _Only if they are in good health and die quickly. One of the downsides of reverse mortgages is that the income can bump you into an income bracket that negates any assistance in cases of need in old age.
> _A few hundred dollars a month??? _Will that cover in home assistance or a nursing home?
> 
> Only the bank wins on this. That's why they were created.


 It's not counted as income.
If you are worried about that, take it all in cash up front.
As far as covering in home assistance, it's more than they would have without it.


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## RDuke

Look everyone, I'm sorry I brought this thread back to life. I was hoping to hear from someone who has actually gone through the process to find out, good or evil, just what a reverse mortgage is like. So far that hasn't happened. I'll check back in a day or three to see if anyone volunteers information. I've gleaned enough so far to know that I don't know much at all about reverse mortgages. I'm not in such dire straits that I'm counting on this do dig me out of a hole but the general idea is appealing and sounds as if it COULD work. Whether or not it actually does is another story. 
I know it's not free money. I know too that my house (debt free) is mine to do with as I please. 
My kids don't want it and never will. When I'm dead I won't want it either. So the idea of getting a little cash back out of it is very appealing. BUT, and it's a big but, would I be falling for some shady deal foisted by some greasy haired con man with a pencil thin moustache and wearing a sharkskin suit? That's what I'd like to hear more about from someone with feet on the ground, someone invested in the program. 
I'll check back.


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## po boy

RDuke said:


> Look everyone, I'm sorry I brought this thread back to life. I was hoping to hear from someone who has actually gone through the process to find out, good or evil, just what a reverse mortgage is like. So far that hasn't happened. I'll check back in a day or three to see if anyone volunteers information. I've gleaned enough so far to know that I don't know much at all about reverse mortgages. I'm not in such dire straits that I'm counting on this do dig me out of a hole but the general idea is appealing and sounds as if it COULD work. Whether or not it actually does is another story.
> I know it's not free money. I know too that my house (debt free) is mine to do with as I please.
> My kids don't want it and never will. When I'm dead I won't want it either. So the idea of getting a little cash back out of it is very appealing. BUT, and it's a big but, would I be falling for some shady deal foisted by some greasy haired con man with a pencil thin moustache and wearing a sharkskin suit? That's what I'd like to hear more about from someone with feet on the ground, someone invested in the program.
> I'll check back.


 I can understand. It cost me several thousand dollars to get approved to do them and never did a one. I'm retired and have no skin in the game. I do believe the fees are uniform (but high) and at this time FHA is the only folks doing them. However, FHA did/does loan the highest % of value.


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## po boy

Let me add this.

If you are thinking about getting a reverse mortgage you must go through reverse mortgage counseling prior to getting a reverse mortgage loan. They should be able to answer all your questions. Check here, see #2.


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## Nevada

Can a person do a reverse mortgage twice?

What I mean is, say you take a credit line of $50K when your home is worth $100K. If your home eventually goes up in value to $200K, can you increase that credit line somehow?


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## Staceyy

The guidelines for obtaining a reverse mortgage are changing as of 10/1/13. You will get much less money if you apply after that date, and at that time lenders will then be required to obtain an appraisal, pull your credit report and do income verification to see if you qualify. Presently only an appraisal is required to see if the borrower has enough equity. So apply within the next two weeks if you want the most favorable terms and payout amounts.


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## TnAndy

Funny rules since the whole thing is based on home equity.....you ain't never paying it back, so income should be irrelevant, and so should a credit report.


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## Staceyy

TnAndy said:


> Funny rules since the whole thing is based on home equity.....you ain't never paying it back, so income should be irrelevant, and so should a credit report.


HUD says the new guidelines are being enacted, as some borrowers cannot afford to pay their taxes and insurance. Here is an article regarding the new guidelines...http://online.wsj.com/article/SB10001424127887323608504579023100143165032.html


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## po boy

Staceyy said:


> HUD says the new guidelines are being enacted, as some borrowers cannot afford to pay their taxes and insurance. Here is an article regarding the new guidelines...http://online.wsj.com/article/SB10001424127887323608504579023100143165032.html


Here is the Mortgage letter pertaining to this. It's 2013-27.


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## Nevada

Staceyy said:


> The guidelines for obtaining a reverse mortgage are changing as of 10/1/13. You will get much less money if you apply after that date


Swell...


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## Michael W. Smith

I've only read about them, but it seems that if you don't have any kids, or kids that would want your place, then it could be a good deal.
But, if you live on a property, that you would prefer stays in the family, unless your family is able to come up with the cash to buy your house, chances are it's not going to stay in the family.
I also understand that the fees to do this are somewhat high too.
Just remember, the bank or insurance company, or whomever aren't doing it because they feel bad for the elderly folks, they do it because they figure they are going to make money on it.


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## mnn2501

TnAndy said:


> What's the downside in our case ??


What happens when you can no longer maintain it?
What happens when you get sick and need more money for a nursing home?
Frankly when I hit 70 or so or when I start slowing down I will sell the homestead and buy a condo and let someone else worry about the upkeep, and I can still sell it if I need the money.


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## TnAndy

mnn2501 said:


> What happens when you can no longer maintain it?


Uh.....maybe if I used some of the equity in the form of a RM, I could pay somebody to maintain it ??

Or I guess we could leave a run down place for my distant relatives I don't even like, and their attorneys, to fight over when gone.......... 



mnn2501 said:


> What happens when you get sick and need more money for a nursing home?


You're making the assumption that will happen. Both my parents dropped dead of heart attacks in the middle of doing something. Wife's father died of pneumonia a few days after walking to work in the rain ( he regularly walked to work ) and catching a cold.....at age 85. Wife was 12 at the time ( was he a stud or what ? ) Her mom did languish in a hospital for a while with congestive heart failure. So that's 1 out of 4 that 'might' have used some long term care.

What if I've decided I'm NEVER going to an "old folks warehousing facility" where they simply sit around and wait to die ? When my end comes, it comes here at home. None of us are getting out of this world alive, and extending that period to sit around at the warehouse seems rather silly to me. I know it's common for kids to dump their parents in those places, but again, we're fortunate we don't have kids.



mnn2501 said:


> Frankly when I hit 70 or so or when I start slowing down I will sell the homestead and buy a condo and let someone else worry about the upkeep, and I can still sell it if I need the money.


OK....you have YOUR plan. That just isn't EVERYBODY'S plan.


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## TnAndy

Staceyy said:


> HUD says the new guidelines are being enacted, *as some borrowers cannot afford to pay their taxes and insurance.*




ahahhaaaaa......so they can't get a mortgage and free up some equity, that would allow them to pay, among other things, the taxes and insurance, because they can't NOW pay the taxes and insurance.

Only in America...........


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