While it always is dangerous to sign any contract without first consulting a lawyer, it is especially risky to sign papers provided by a nursing home, assisted living facility, or other care center upon a loved one’s admission.  First, you likely will be under substantial stress and not in a frame of mind to give the contract the deliberate attention needed.  Second, care facility contracts typically contain jargon foreign to lay persons.   I can almost guaranty that you’d be surprised to learn all the obligations you undertake when signing as ”responsible party” for a nursing home or assisted living resident.

What can go wrong if you sign on the dotted line as ”responsible party?”  Plenty!  For instance, do you really want to risk your own house and savings if the facility doesn’t get paid and you haven’t promptly and properly applied for Medicaid [a daunting task on its own]?  I didn’t think so, but, nevertheless, you may incur personal liability if you you don’t obtain legal advice before agreeing to be “responsible party.”

Care facilities may not require you to guaranty a parent’s bill but courts have been known to enforce a so-called “voluntary” guaranty.  When you sign as “responsible party” are you voluntarily guarantying your loved one’s bills?  I would argue not, but wouldn’t you rather avoid the risk entirely by having us negotiate more favoarable contract terms before you sign.

Our Oct. 29, 2012 blog entry illustrates the risks of signing a care facility agreement without counsel.  Cook Willow Health Center v. Andrian (Conn. Super. Ct., No. CV116008672, Sept. 28, 2012).  In signing as “responsible party” the resident’s daughter agreed to arrange payment to the facility from the resident’s assets or Medicaid, but apparently the daughter didn’t follow through.  Since the daughter signed the admission agreement, the daughter is obligated to take the actions to which she agreed as “responsible party” and the nursing home could sue the daughter for the unpaid bills.

Even more recently the New York courts held a wife liable for her husband’s nursing home costs in Sunshine Care Corp. v. Warrick (N.Y. Sup. Ct., App. Div., 2^nd Dept., No. 2011-02193, Nov. 28, 2012).  In signing the admission agreement as “designated representative” for her husband in a nursing home, the wife agreed to pay the facility from her husband’s resources and be personally liable if the nursing home wasn’t paid due to the wife’s actions or omissions.  The court held that the contract obligates the wife for her husband’s unpaid bills because she had access to her husband’s funds but didn’t pay the nursing home.

As the cases referenced above show, signing a care facility agreement without counsel can be very costly.  In addition to leading to personal responsibility for a loved one’s bills, signing an unfavorable agreement can force you to spend on your loved one’s care costs amounts you otherwise lawfully could preserve through Medicaid planning.  While many facilities routinely include in a care contract terms that may frustrate Medicaid planning, I typically negotiate out those provisions before my clients sign a contract.

So, what should you do when a loved one needs long term care?  Consult an elder law attorney BEFORE signing anything.  Thousands of dollars [or more] may be at stake.  FriedmanLaw frequently helps clients understand complex care facility contracts and negotiate away unfavorable provisions.

Further information on finances, elder law, funding long term care without going broke and other subjects is available throughout SpecialNeedsNJ.com. To subscribe to our frequent blog updates, click on “Subscribe to this Blog” in the Meta box to the left and then click on “subscribe to this feed.”

Reverse mortgages can provide income to cash-strapped older homeowners, but they aren’t a panacea.  They can be a quick source of cash but come with a price.  To determine whether a reverse mortgage can help you meet your goals, consider the plusses and minuses.

How reverse mortgages work

Meant for homeowners age 62 and older, reverse mortgages are a special type of loan because the lender pays the homeowner while the homeowner continues to live in their home. The two main types of reverse mortgages are the Home Equity Conversion Mortgages (HECM) offered by the federal Department of Housing and Urban Development (HUD), and Proprietary Reverse Mortgages offered by some banks, credit unions, and other financial companies for higher value homes. (About 95% of the the reverse mortgages out there are HECM loans.) The HECM program offers two types of reverse mortgages: the traditional HECM Standard loan, and the HECM Saver loan which has lower upfront charges but also lower payouts.

The amount of the loan is determined by factors such as the borrower’s age; the amount of equity in the home; and in the case of HECM loans, a national limit imposed by HUD. Payments may be taken as a lump sum; line of credit; fixed monthly payments – for a specific period, or for as long as the borrower lives in the house; or a combination of payment options.

The loan must be repaid in full when the homeowner no longer lives in the home as the principal residence or fails to meet the obligations of the mortgage.

What reverse mortgages cost

A primary negative to reverse mortgages can be comparatively high costs.  Reverse mortgages have closing costs just like traditional mortgage loans, but they can prove more costly. These expenses can include: an origination fee, an appraisal, a title search and insurance, surveys, inspections, and recording fees. HECM Standard loan borrowers must also pay a mortgage insurance premium up to 2% of the value of the home. Total fees are limited by federal regulations, but they can still add up. The HECM origination fee is capped at $6,000, and the minimum fee is $2500. Most of these costs, however, can be paid as part of the reverse mortgage loan.

Benefits of reverse mortgages

A reverse mortgage is a way to tap home equity but remain in the home.  As such it gives up future access to value (and perhaps the children’s inheritance) in exchange for cash now.  The cash from the reverse mortgage can help seniors remain in their homes by paying for extra help with their daily living or medical needs. It can be used to pay off the existing mortgage or other debts, or it can supplement the homeowner’s monthly income for a more comfortable lifestyle or to fund emergencies.  However, since there aren’t limitations on how a borrower uses reverse mortgage proceeds, they also are available for less weighty purchases such as a trip, home modernization, new car, etc.

Reverse mortgages can be part of a sound financial plan for older homeowners, but must be carefully considered. Before using this device, which draws on the built-up equity in the home, homeowners should explore other programs which supplement a limited income. Many public and private benefits exist to help with expenses like property taxes, home energy, meals, and medications. The National Council on Aging (NCOA), a nonprofit advocacy organization for seniors, provides tools, information, and counseling on reverse mortgages and alternative options on their website ncoa.org/HomeEquity.  Additional information about reverse mortgages appears at our Aug. 30, 2012 entry on this blog.

A big thankyou to FriedmanLaw’s paralegal Nancy Hochenberger for contributing to this article.

To subscribe to our frequent blog updates, click on “Subscribe to this Blog” in the Meta box to the left and then click on “subscribe to this feed.”