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The Law

Reverse Mortgage Payments and Court-Ordered Judgments

Are installment payouts fair game for debt collection?

Lawsuit reverse mortgage

Can a reverse mortgage be garnished to cover damages in a lawsuit filed against you? — iStock

Roy B. Ewing, a New Jersey pensioner in his early 80s, drove his car into the wrong lane of traffic and hit Charles Cameron, who was riding a bicycle. Cameron, in his 60s, suffered severe injuries, including brain trauma. He returned to the prep school where he taught, but his injuries forced him to take early retirement.

Ewing did not have auto insurance. In 2009, he agreed to a judgment of $400,000 and said he would make monthly payments to Cameron.

See also: AARP is working to protect reverse mortgage borrowers

Two months before settling the case, Ewing had obtained a reverse mortgage. Wells Fargo Bank took out a $360,000 mortgage on his Lambertville, N.J., home and agreed to pay him $959.01 per month for life. His only other income came from Social Security and a modest public employee pension. Under the mortgage rules, Ewing agreed to live in the house and maintain it. He did not have to repay the money. The bank could recover its money only by selling the house. He had not yet made any payments to Cameron.

Then Cameron and his wife, Christine, discovered Ewing's reverse mortgage and demanded the payments from Wells Fargo or Ewing himself.

Both Wells Fargo and Ewing refused to send any money. They argued that the payments under the reverse mortgage were a loan from Wells Fargo — not income — and the Camerons had no claim to it.

The Camerons sued, arguing that, under New Jersey law, the payments freed up Ewing's home equity and could be garnished. If not for the reverse mortgage, the Camerons could have taken Ewing's house to satisfy the judgment.

Next page: Law favors creditors when a debtor has the means. »

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Video Extra

A tale of two reverse mortgage borrowers who had two very different outcomes.

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