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MEDICAL SERVICES POLICY MANUAL, SECTION E

E 518 Reverse Mortgage or Home Equity Loan

EXAMPLE: Mr. Smith is applying for nursing facility services. He is otherwise eligible except he has equity in his home in the amount of $537,000 which exceeds the $536,000 (2013 standard) home equity limit. He converts $1,000 of the home equity to cash. Mr. Smith reports no other resources. His home equity is now within the accepted limits and if his resources are below $2,000, he is now eligible for vendor payment or Home and Community Based Services. EXAMPLE: Mrs. Jones, a LTSS applicant, has equity in her home of $550,000. She obtains a home equity loan of $25,000 thereby reducing her equity to $525,000. She now meets the home equity limit but is ineligible due to countable resources of $25,000 if she retains the loan proceeds in the month after she receives them. If an individual has arranged a private reverse mortgage with an adult child instead of with a commercial lender, verification that the loan is “bona fide” will be required prior to the approval of a reduction in home equity value. If the applicant cannot prove that the loan is bona fide, then the loan cannot be used to reduce the equity value of the home. In order to be considered a bona fide loan, each of the following requirements must be met: • A bona fide loan is a contract that must be enforceable. • The loan agreement must be in effect at the time that the cash proceeds are provided to the borrower. Money given to an individual with no obligation to repay cannot become a loan at a later date. • A loan is an advance from a lender that the borrower must repay with or without interest and that must be acknowledged by both the lender and the borrower for a bona fide loan to exist. • The loan must include a plan or schedule for repayment and must document the borrower’s express intent to repay the loan by pledging either real or personal property for anticipated future income. • The plan or schedule of repayment must be feasible. In determining the plan’s feasibility, consider the amount of the loan and the borrower’s income, resources and living expenses, as well as, other factors that may influence the repayment of the loan.

The individual applying for medical assistance will be required to provide a copy of the loan note which must include the following: 1. Verification of the loan balance, 2. The payment schedule, and 3. Verification of actual payments.