What happens to a reverse mortgage with Medicaid?

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Q. Does recovery of a Medicaid lien on a home take precedence over a reverse mortgage? Or even a regular mortgage? I could foresee a situation where someone would take out a reverse mortgage to cash out, figuring they would be losing their home to Medicaid anyway.
— Curious

A. You’re right that people try all kinds of strategies to protect their assets from Medicaid.

But the rules surrounding Medicaid eligibility are strict, and the scenario you pose isn’t a simple one.

Regular mortgages and reverse mortgages take precedence over a Medicaid lien, said Shirley Whitenack, an estate planning attorney with Schenck, Price, Smith & King in Florham Park.

But, she said, there is a limit to the amount of equity that a person can take from a reverse mortgage.

“Moreover, reverse mortgage payments may affect a person’s eligibility for Medicaid benefits,” Whitenack said. “Mortgage payments are not counted as income as long as they are spent in the same month that they are received.”

Whitnack said the unspent balance from a lump-sum reverse mortgage, however, can result in excess resources over the Medicaid limit.

In addition, she said, if a person moves out of their home, for example, to a nursing home, the mortgage will likely come due.

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This story was originally published Nov. 12, 2019.

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