Are there any ramifications with Medicaid or IRS if family assumes mortgage or buys house for mortgage amount? -

Are there any ramifications with Medicaid or IRS if family assumes mortgage or buys house for mortgage amount?


Mom is in NH in IND. she has dementia/uncontrolled diabetes. has a home in IL w/mortgage. Medicaid just approved enrollment. She has credit card debt of $40,00 and mortgage of $61,000. Attorney told us not to pay any bills and to get an appraisal on her house & include w/documents for Medicaid. It is $14,000 more than mortgage. Are there any ramifications with Medicaid or IRS if family assumes mortgage or buys house for mortgage amount?

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If there is still a mortgage on a property, then the mortgage holder retains ownership. Only when the mortgage is paid off and a Release of the Deed of Trust done & filed does the property become truly the owners property. House as Ninny described is not owned by her mom so it cannot "belong to Medicaid".

The mortgage holder being made whole at the act of sale by the terms of mortgage is first & foremost. Their lien on the house has to be paid. Bank of America or Chase mortgage doesn't care about Medicaid or do they need to. Thats the former mortgage holders now owner problem to deal with whatever funds are left after the act of sale is done.

Mortgage holder is pretty powerful. It's like if you have a mortgage and insurance & the house burns down or is destroyed. The mortgage holder can require the insurance $ to fully go to pay off the mortgage. If that leaves you with no funds to rebuild, well that is unfortunate. But allowed under the terms of contracts.
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Ninny, do not buy the house, it now belongs to Medicaid. So does the car. So anything bought, sold, or quit claimed MUST be reported to Medicaid. Should you try to get around this, ramifications include being charged with Medicaid Fraud. Even if you rent the house, the rent money goes to the NH.
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I would suggest that you send a registered letter & fax specifically asking your state's Medicaid program:
- what valuation on the home is the base figure that they (Medicaid) place on the asset. Most of the time it is the figure the tax assessor bill states, but you want to make sure just what the hard $ amount it.
- if it's not the tax assessor amount but what an appraiser sets, then ask what / how the appraiser needs to be. Often the Realtor will prepare a book on what they can "sell" the house for and this tends to be a best case scenario on selling the house. The Realtor is not a property appraiser. If the amount is what a Realtor said, this usually will not pass for a true appraisal which is done by someone registered by the state to do commercial or residential property assessment with specific training to do so.
- Contact the mortgage company to find out what the pay-off figure will be - it may not be what the balance of the mortgage is. There could be other costs involved - like a penalty for paying off early and not running mortgage to the full 30 years. Other paperwork and title release costs, etc.

You need to have hard verifiable data as to the figure on the house, so that her spend-down meets Medicaid compliance and there is no transfer penalty if you buy the house once the mortgage is struck.

You want to get all this to take to the meeting with the elder law attorney that JeanneGibbs suggested.

About the car, whatever it gets sold for will be recorded in the state's database and may surface as a question for Medicaid when she has to do reporting for her annual renewal. I'd put the $ from the sale into her bank account and do a spend-down on the amount for something for her within the month of the deposit (like get her new eyeglasses or take her to see a dentist - both things not really covered by Medicaid). You want it so that the beginning of the month (& the beginning of that month's bank statement) and the end of the month show that she is impoverished for Medicaid. No gain in income.

About the 40K CC debt, although she can walk on that, there may be an issue with it in the future. What may happen is that each CC can send her a 1099-C which is a IRS Cancellation of Debt Form. The 40K and any fees although written off are fully considered "income" and taxable. The amounts in the 1099-C's will show up as "income" if her state does an IRS match-up or verification for Medicaid income. The "income" will make her ineligible for Medicaid. You or whomever is her DPOA will have to file taxes for her for the year that she gets the 1099-C's and do an insolvency form (IRS form 982). imho it's not a DIY or TurboTax project, you need to get a CPA who know how to do the form correctly. The 982 has a worksheet for how to record the offset to the debt which is geared to "income" made for debt written off on foreclosures rather than CC debt & really a pro needs to do it correctly. For even more fun in this, the CC do not have to send out the 1099-C for the year in which mom stopped paying, it could be in next years taxes or perhaps even a couple of years down the road for them to send. So be on the lookout for 1099-C each January for last years taxes.

As an aside, I'm surprised that Medicaid approved her as usually if they own property in another state the property is viewed as a non-exempt asset for Medicaid; so they are not fully approved for Medicaid till the property sold and funds spent down on their care with documentation on spend-down. Although they can be OK for Medicaid Pending if the property is listed with a Realtor. TX Medicaid will not fully approve till property is sold and all proceeds to seller is used in spend-down. You all are really lucky that Illinois allows for this.
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Thank you for the quick response! I asked one of the many Medicaid agents that if I ascertained 2 or 3 new appraisals or market values, would they accept them as true value. The first appraisal was a rush deal, and the realtor & I could not schedule an appt. for her to assess the inside of the house, so my siblings and i are not sure if the value is correct. I am making an appt to see a different attorney..I believe that we were told to do an action without being told the consequence.

Medicaid valued mom's car at $459; we have someone who is interested in purchasing it for $1,000 or so. do we have to report that income to Medicaid since they had no interest in the car? Car was titled in her name only.
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Mom can continue to own the house, but if and when it is sold Medicaid expects the proceeds to be used for her care. Of course, once the mortgage is paid off, there would be no proceeds in your scenario. BUT if the house could be sold for $75,000 and you buy it for $61,000, Medicaid will probably consider that $14,000 a gift -- it is money that could have been used for her care. They results in a penalty.

Pay the attorney for another consultation to be sure you know the consequences before you act.
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