Foreclosure and Medicaid

8 Replies

The subject of medicaid and real estate continues to elude me. I have yet come across another deal where the decision maker is in the nursing home and someone wants to buy her house.

To complicate the matter, her house is encumbered by an old 2007 mortgage. The original principal balance was 201k. which means even if she never paid any of it there is at least 100k worth of equity. The 2007 mortgagee is currently foreclosing however I have not found an auction date yet in any news paper.

I have checked the property's title and do not see any liens recorded for the owners nursing home expenses. However several attorneys have told me that these liens are phantom liens which are senior to a mortgage.

In this instance we have 4 parties involved. The state, the mortgagee, the buyer and the owner.  Can anyone educate me on the process I need to guide my buyer down to acquire this property? Is there even a way to do it? 

Many thanks.

If the original principal balance was 201K, and nothing paid since 2007, I'd imagine the interest to have outrun the equity/appreciation by now?

What's the barrier between mortgagee and owner? I would think of 3rd party mortgage negotiation forms, or Power of Attorney forms, or the name on the deed, but not sure how medicaid would tie in here?

@Greg K. yes that was a bad example the interest and fees would probably have eaten up all the equity. What I am trying to figure out is how my buyer can get the deed for the property. If she sells the house to him it could make her ineligible for medicaid benefits if there is a profit correct?

Medicaid confuses me because it is a running expense. Lets say shes been using it for a year. Would my buyer be able to call someone to figure out exactly what would be owed to the state when the house is sold?

Well, no equity, probably no profit. Maybe a short sale, which is a hardship situation. The state of Massachusetts would never cut out someone's medicaid because of that.

  Sounds like you need a real estate savvy accountant/lawyer who practices in Massachusetts.  I'd suggest poking around for references to such a person.  I appreciate how you're truly looking out for both parties best interests.

No i definitely think there is equity. Have you ever bought or represented someone where the owner was utilizing medicaid benefits for their stay in a nursing home?

Updated about 2 years ago

Have you ever bought a house or helped someone buy a house where the owner was utilizing medicaid

I have had similar opportunities. In the one I am working through now MassHealth has a lien on the property which is more complicated as the house is being purchased at a deep discount due to the distressed nature of the home.

I don't think this instance need be overly complicated if there are no liens. If you purchase the house for more than what is owed on the mortgage, than the foreclosure issue is taken care of.

In my experience with Medicaid the seller would not be eligible for Medicaid until after the house was sold. Once the house is sold, the seller will have to spend the proceeds on their medical care and other normal expenses. Once they have spent all their money (I believe you can have no more than $2,500 in your bank account), Medicaid kicks in. The proceeds from the sale would also be used to pay off any unpaid medical bills etc.

So if they already are receiving support, make sure their is no MassHealth coverage currently, which could lead to liens and more complication. The patients can often be confused by the difference between Medicaid and MassHealth, using the names interchangeably. 

I have had Medicaid question the sale of a house retrospectively, questioning the sale price because we bought below FMV, however, a letter explaining the price based on the "as is" condition of the house and the expenses required for renovate to get the house to FMV was sufficient. Doesn't sound like this will n ecessarily be the case here, but to help the seller in such a case, as an agent you should be able to prepare a BPO of the property "as is" that they can use for this purpose should it be required.

@John-David Herlihy

Thanks for the input John. Lets say hypothetically the mortgagee foreclosing is owed 200k. The mass health lien is 60k. The property goes to auction and bids only go as high as 200k. I am assuming the state is guaranteed their 60k because they have higher priority than the mortgage. So at this point the bank would have to take a 60k hit and sell at auction for 200k or sell it later through a broker and hope for a higher number to recoup the 60k + 200k? Either way the foreclosing mortgagee has to pay all liens senior to its lien in order to put it back on the market or do they?

Also lets say they sell at the auction for 200k at the auction is this considered a fair market value sale in the eyes of mass health or is mass health still going to require an appraisal be done?

@Rich Hupper I unfortunately don’t have any experience with the combined foreclosure and MassHealth/Medicaid situation to give a helpful or insightful answer. I am not even certain if a MassHealth lien would be senior to the 1st mortgage. I know tax liens are senior to everything, but not sure how the MassHealth ones are handled. I’d ask my lawyer for her thoughts, but she charges me by the hour for these issues :-0

As a partial answer from my understanding, if you can substantiate FMV you should be good with MassHealth and/or Medicaid.

I actually have two buyers interested in two different properties where the owners are using mass health. One is interested in the house with a mortgage on it. The other is a property with no mortgage.  In both instances the properties are definitely considered tear downs for highest and best use. One of my buyers will pay the tear down price, but my other buyer does not want to because he wants to get the owner out of the nursing home and put her into a new handicap accessible house on the same parcel.

Looks like i have my work cut out for me.