My mother is on a medicaid ward in a nursing home and her home is about to be sold after being foreclosed. Will she lose her benefits for payment to the nursing home?
My understanding is that if the house your mother owns has been foreclosed, usually the Lender is the one that purchases, she would not be realizing any gain for the sale. That being said, there would be no effort on her benefits. However, not being a 'legal beagle', you would be well advised to consult w/one.
If Medicaid is paying for the nursing home rather than Medicare (which I am assuming, since Medicare typically does not pay for long term nursing home), some states allow the house to go to Medicaid once no one is living in it any more to help get reimbursed for some of the nursing home costs, so I'm wondering if it is legal to have a bank foreclose rather than turning the property over to Medicaid. But, every state is different. It's best to ask a lawyer who specializes in Medicaid to know for sure in your state. Or, ask the Medicaid office (anonymously if you prefer) and they should be able to tell you.
She shouldn't lose her Medicaid. I would heavily suggest speaking with a financial worker at your local state Medicaid office, as they know your state's rules and have been through this before- probably a lot. I am not a legal expert either, but I *think* what happens is that the bank gets it. Usually, if the home is being sold by by the family, Medicaid will take their portion from the sale and the rest will go to the beneficiaries of the individual's will. But with a foreclosure, I think the bank gets the house, as the foreclosure reverts the home back to the posession of the bank, which then sells it. I think the state loses out in foreclosures, but check with your Medicaid office to make sure.
If the mortgage payments on a loan against a house fall behind, the bank will eventually foreclose on the house, i.e., sell the house to repay the debt owed to the bank. If the amount owed to the bank is less than the net proceeds from the sale, then there will be money left over, which would belong to your mother. As such, it indeed could affect your mother's Medicaid eligibility.
For example, if the house sells for $100,000, but the bank is only owed $75,000, then the extra $25,000 left over after paying off the balance of the mortgage will be a countable resource for Medicaid eligibility purposes. When it was invested in the house, it was an exempt resource, but now it's just cash in the bank, which is countable. That would cause your mother to have too much money to qualify for Medicaid, unless it is spent down or converted to a non-countable asset in the same month it became available to your mother.
My broker friends tell me that when a foreclosed property comes on the market, owned by the bank, it behooves the purchaser to seek out information from the bank or the listing broker as to how much is owed on the property. No informed purchaser would pay $100,000. on a property that the bank owns with a only $75,000. note due. Even with fees and commissions ( liens are extra), unless there is a bidding war, the price of a foreclosed property is usually close to what the bank wants, or less!
I bought two foreclosures during the great recession, one in FL and one in MI....both great properties, still unsold but that doesn't bother me ( yet).
2 things to look for: 1. Your mom should get a settlement statement from the mortgage company. If there is no overage on the foreclosure sale then mom gets no real $ so no income to be an issue for Medicaid right now. But if she get's any $ (proceeds) from the sale, there is income so then an issue for Medicaid. Just like Heiser said.
2. Mom may get a 1099-C from the mortgage holder for the amount owned on the defaulted mortgage plus fees & expenses. 1099-C is a Cancellation of Debt and is viewed by the IRS as income. The fact that is is totally "phantom income" doesn't matter, it is income and she will have to pay taxes on the amount OR file taxes to do an impoverishment so that the "income" does not pose a problem for Medicaid. 1099-C's are kinda wacky to figure out and I think you need a tax professional to do it for you. Not all banks or debtors issue 1099-C's but the # has increased. The 1099-C will be mailed sometime between Jan & Feb for the preceding tax year.
Attorney Heiser knows what he is talking about.....listen to him. You will need to let Medicaid know what is going on anyway as they thought the house would be there for them to take when your Mom passed. When things like this happen aren't we suppose to let them know within 30 days?
The thing is they should be able to help answer your questions, although that is not always the case, in my experience I have known more than the case worker at times. It seems to me that if there was and extra $25,000 after the sale they would simply have you spend it down by paying her nursing home costs for the next several months. This is strictly a guess on my part however.
When you do find out for sure, it would be great if you could let us know what they say in case we wind up in the same position.
However, not being a 'legal beagle', you would be well advised to consult w/one.
For example, if the house sells for $100,000, but the bank is only owed $75,000, then the extra $25,000 left over after paying off the balance of the mortgage will be a countable resource for Medicaid eligibility purposes. When it was invested in the house, it was an exempt resource, but now it's just cash in the bank, which is countable. That would cause your mother to have too much money to qualify for Medicaid, unless it is spent down or converted to a non-countable asset in the same month it became available to your mother.
unless there is a bidding war, the price of a foreclosed property is usually close to what the bank wants, or less!
I bought two foreclosures during the great recession, one in FL and one in MI....both great properties, still unsold but that doesn't bother me ( yet).
1. Your mom should get a settlement statement from the mortgage company. If there is no overage on the foreclosure sale then mom gets no real $ so no income to be an issue for Medicaid right now. But if she get's any $ (proceeds) from the sale, there is income so then an issue for Medicaid. Just like Heiser said.
2. Mom may get a 1099-C from the mortgage holder for the amount owned on the defaulted mortgage plus fees & expenses. 1099-C is a Cancellation of Debt and is viewed by the IRS as income. The fact that is is totally "phantom income" doesn't matter, it is income and she will have to pay taxes on the amount OR file taxes to do an impoverishment so that the "income" does not pose a problem for Medicaid. 1099-C's are kinda wacky to figure out and I think you need a tax professional to do it for you. Not all banks or debtors issue 1099-C's but the # has increased. The 1099-C will be mailed sometime between Jan & Feb for the preceding tax year.
The thing is they should be able to help answer your questions, although that is not always the case, in my experience I have known more than the case worker at times. It seems to me that if there was and extra $25,000 after the sale they would simply have you spend it down by paying her nursing home costs for the next several months. This is strictly a guess on my part however.
When you do find out for sure, it would be great if you could let us know what they say in case we wind up in the same position.