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Effective: September 1, 2008 |
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19.55.20ar2 - Calculating Home Equity Interest (Archive) |
Archived: January 1, 2011 |
This section provides information on determining a person's home equity interest for the Home Equity Limit policy. This limit is only applied to clients applying for MA payment of LTC services.
Home equity is determined by subtracting the encumbrances on the home from the person's interest in the market value of the home. Proof of market value and encumbrances are required.
Note: Market value of a home includes fair market value (FMV) and estimated market value (EMV).
Proof of market value includes:
l A real estate tax statement.
l A statement from the county property tax appraiser.
l An estimate of value from a licensed real estate appraiser.
Encumbrances include:
l Mortgages.
l Contracts for deed.
l Mechanic’s liens.
l Home equity loans.
l Other legally binding debts that are secured on the home.
The calculation used to determine a client's home equity interest is different when:
l The client is a sole owner versus a joint owner.
l The client has a life estate interest in the home.
To calculate the home equity amount:
1. Determine the market value (FMV/EMV) of the home.
2. Subtract all applicable encumbrances from the FMV/EMV.
Example:
Kelly applies for MA payment of LTC services on October 8. She owns the home in which she has been living for the past 10 years. Kelly verifies the FMV of the home is $700,000, and the home is subject to an existing mortgage of $300,000.
Action:
Kelly has a $400,000 equity interest in her home ($700,000 - $300,000). Her home equity interest is below the home equity limit. Kelly is eligible for MA payment of LTC services if she meets all other eligibility requirements.
When two or more unmarried individuals have ownership interest in a home, consider each person to own equal shares, unless documents show that they have a greater or lesser share of ownership.
To calculate the client’s portion of the home equity amount:
1. Verify the client’s share of ownership in the market value (FMV/EMV) of the home.
2. Determine the client’s share of the FMV/EMV based on the client’s ownership interest in the home. Request a copy of the deed of ownership to determine the client’s share.
3. Subtract encumbrances that are the client’s sole obligation from the client’s share of FMV/EMV, or for shared encumbrances, in proportion to the client’s share of the encumbered FMV/EMV.
Example:
Lola, Herda and Irwin are siblings who own a home together. Herda applies for MA payment of LTC services on October 19. The home’s FMV is verified to be $600,000 with each sibling owning equal shares. The house was paid in full 10 years ago and there are no outstanding encumbrances.
Action:
Herda’s ownership interest in the home equity value is $200,000 ($600,000 divided by 3). Her home equity interest is less than the home equity limit. Herda is eligible for MA payment of LTC services if she meets all other eligibility requirements.
Example:
Ronald and Wayne are brothers who purchased a home together 10 years ago. Wayne applies for MA payment of LTC services.
Wayne verifies owning 70% interest in the home and that the FMV is $800,000. He also verifies he owes $100,000 on the home and his brother owes $200,000.
Action:
Calculate Wayne’s ownership interest in the home equity value as follows:
1. Wayne owns 70% of the property value which is $800,000.
2. His ownership interest equals $800,000 X .70 = $560,000.
3. His home equity interest is $560,000 - $100,000 (encumbrances) = $460,000.
Wayne’s home equity interest is less than the home equity limit. He is eligible for MA payment of LTC services if he meets all other eligibility criteria.
Determine a client’s home equity interest in a home held in the form of a life estate by using the market value of the client’s life estate interest, minus any encumbrances.
To determine the client’s life estate interest follow the steps provided in Life Estates, Determining Life Estate Interest.