Can Mom be denied on her medicaid application if she owns a home but needs to choose to walk away from her mortgage?

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Mom has a mortgage that is upside down. SHe has little if any equity. The mortgage is prohibitive to her needs - meaning that she needs care, and can not live at home anymore alone. She has applied for medicaid in Illinois.

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Under federal law, it is only the net equity that counts, i.e., the value of the asset minus the debt owed (20 C.F.R. 416.1201(a)). In any event the home would be an exempt asset even if she had some equity. In either case, then, this should not affect her Medicaid eligibility.
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Listen to the expert Mr. Heiser. But for heaven sakes, get a realtor in on this house, try for a short sale or some other remedy. We already had our real estate upside down debacle in 2008, but Bank of America was punished and we got $6000 back for all the hassle they put us through.
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May have a home, one motor vehicle and no more than $2000 in the bank (if not married)....would sign a statement saying she intends to return home at some point...a formality....gets more complicated if there is a community spouse still at home....bear in mind that elder care lawyers are not all created equally qualified...we consulted four, three of whom were woefully out of date on the law...In case she has substantial assets (money, mainly) and gifts it to children, there is a five year lookback from the date she enters the nursing home....any gifts in that five years delay the onset of Medicaid by that amount....Example: gifts total $50,000.....Nursing home costs $10000 a month, would mean the onset of Medicaid would be delayed by five months....So, out of pocket until then,...Mine are vastly oversimplified comments....just a hint or two....
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Sooz - what the 5 mos Bob is referring to is a simple transfer penalty equation. So if 10K a mo for NH then a penalty of 50K is 5 mos.

However, in actuality, transfer penalty more involved. Each state has their own unique reimbursement rate for the room & board paid by Medicaid. The transfer penalty is based on that rate and has a couple of other factors involved (when transfer & application done. Most states have the formula in their Medicaid website. Like if the penalty was for TX, TX r&b is about $ 145.00 day. So a 50K transfer penalty in TX would run about 344 days of ineligibility for Medicaid to pay. The residents although now qualified for Medicaid would be ineligible for payment for 344 days. Almost a year and almost double if the r&b was $ 333.00 a day (10K a month payment). The state of penalty makes a huge difference.
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She is a prime candidate for Medicaid as she is probably bankrupt. See a debt counselor and get it done.
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Tom - if mom walks on the house, the mortgage holder will eventually foreclose on the property. When that happens, mom will probably get a 1099-C from the mortgage holder (1099-C is the IRS form for Cancellation of Debt). The amount will be for whatever the foreclosed amount is plus perhaps all fees. It will be a significant amount of $$$. The sticky with this is that the amount indicated in the 1099-C is is fully considered income and taxable.

Totally zombie income but income nevertheless. And taxes have to be paid on all income. Mom will have to file taxes for that year and do a specific form and documentation for 2 things - to offset the "income" from any costs on the home & also because she is on or applying to be on Medicaid also do it for impoverishment (IRS form 982).

Why? you ask….well the 1099-C goes from the issuer to the IRS also. IRS will provide this info for any match up between the IRS & the states. The amount on the 1099-C is fully taxable income and will keep her for qualifying for Medicaid as it will take her over the income/ asset limits of Medicaid. That is what the 982 will take care of.

1099-C can be issued for any cancellation of debt. Credit card debt, old medical debt, anything that a debt holder wants to do a 1099-C for. There are real business advantages to issuing 1099-C for write offs. So think if mom could have other debts, that could have their own fun to deal with 1099-C too. 1099-C do not have to be issued for the year in which the debt was canceled necessarily. CC ones can be issued years & years later from when the account was closed. So be on the lookout for these in January when all 1099's have to issued and mailed out by the EOM. You will have to do a 982 it for every year that mom gets a 1099-C. They are kinda sticky to do, not really a DIY IRS filing or any of the TurboTax type of programs. Most free for the aged tax programs (like the great AARP one) does not 982 type of filings. You have to get a tax pro or CPA to do it.
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I was told if you own a home are any property do not sale with in a 5 yrs. before you get sick. That Medicaid will not help you.
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Old Bob... You said Medicare looks back 5 yrs. In case she has substantial assets (money, mainly) and gifts it to children, there is a five year lookback from the date she enters the nursing home....any gifts in that five years delay the onset of Medicaid by that amount....Example: gifts total $50,000.....Nursing home costs $10000 a month, would mean the onset of Medicaid would be delayed by five months....So, out of pocket until then,..." Why 5 months?
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$10,000 divided into $50,000 equals a five month wait...another commenter explained in more detail...
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