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When Tokenized Real-World Assets Collide With The Real World

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Biying Cheng and I have a column in Law 360, When Tokenized Real-World Assets Collide With Real World. It reads,

The city of Detroit filed a public nuisance lawsuit in July of last year in the Michigan Circuit Court for the Third Judicial Circuit against Real Token, its co-founders and 165 affiliated entities, alleging building code and safety violations across over 400 Detroit residential properties.[1] RealT is a blockchain real estate platform that sells fractional interests in individual U.S. rental properties through the issuance of crypto security tokens.

On July 22, the judge issued a temporary restraining order — later converted into a preliminary injunction on Nov. 4 — barring RealT from collecting rent, pursuing evictions without a certificate of compliance and directing future rent into escrow until properties are brought up to code.

Detroit v. Jacobson is ongoing, with a trial scheduled to begin in May. The case highlights the brave new world we face when real estate assets are tokenized via blockchain technology.

The facts surrounding the case raise three pressing questions. First, are these real estate tokens securities? Second, assuming they are, do investors know what they are getting into when they purchase them? Third, and most importantly, are the very human tenants in these properties being provided with habitable housing by their decentralized finance landlords?

Are real estate tokens securities?

Until the Trump administration indicated that it might be taking a new approach to crypto more generally, it seemed clear that tokens like those issued by RealT were securities. Gary Gensler, chair of the U.S. Securities and Exchange Commission under the Biden administration, had stated that security tokens were generally securities under the long-standing Howey test, derived from the U.S. Supreme Court’s 1946 decision in SEC v. W.J. Howey Co.[2]

Trump administration officials have not, however, spoken in one voice on the issue. While SEC Commissioner Hester M. Peirce, the head of the SEC cryptocurrency task force, stated in July last year that “tokenized securities are still securities,” SEC Chairman Paul Atkins stated that “most crypto assets are not securities” a few weeks afterwards.[3]

Further muddying the waters, President Donald Trump’s Working Group on Digital Asset Markets released a report around the same time that distinguished between tokenized securities and tokenized nonsecurities, such as “commercial real estate.”[4]

On July 31, Atkins also announced the Project Crypto initiative to aid “President Trump in his historic efforts to make America the ‘crypto capital of the world.'” Under the aegis of Project Crypto, the SEC intends to develop “clear guidelines that market participants can use to determine whether a crypto asset is a security or subject to an investment contract” to slot crypto-assets into various categories.

The initiative also contemplates “an innovation exemption that would allow registrants and non-registrants to quickly go to market with new business models and services,” with no need to comply with burdensome regulatory requirements.[5]

It remains to be seen which types of real estate tokens will be deemed by the Trump administration to be securities and which will be deemed interests in real estate. It is important to acknowledge, however, that it would be a radical change to deem real estate tokens like RealT’s not to be securities, and it would upend decades of settled law relating to the Howey test.[6]

Indeed, the U.S. Court of Appeals for the Ninth Circuit on Aug. 11 reaffirmed a broad interpretation of the Howey test in SEC v. Barry.[7] To determine whether a security token is a security, the starting point is to decide whether it is an “investment contract” for the purposes of the Securities Act. Courts have found that the Howey test requires four elements to be met to determine whether something is an investment contract: (1) there must be an investment by the investor (2) in a common enterprise (3) with an expectation of profit (4) derived primarily from the efforts of others.

The Ninth Circuit in Barry found that sales of fractional interests in life settlements were investment contracts under the Howey test, and thus are securities. A life settlement is a transaction in which someone sells a policy insuring their own life to investors for an agreed-upon price, and the investors then take over the payment of the premiums and collect the death benefit after the insured dies. The defendants were sales agents for Pacific West Capital Group, a firm that buys life insurance policies from seniors and then sells fractional interests in those policies to investors.

Applying Howey, the court held that investors’ expected profits depended on PWCG’s managerial and ongoing efforts, including its policy selection, operation of the premium-reserve mechanism and the fractionalized structure that left investors reliant on PWCG’s management. The life settlements were thus found to be investment contracts.

Although this case does not address the tokenization issue, it demonstrates that the Howey test is generally applicable to transactions that fall under the broad category of “investment contracts.” So, while recent regulatory announcements impose some uncertainty regarding the applicability of the test, the Ninth Circuit’s decision in Barry shows that the Howey test is still alive and well, at least for now.

Are investors protected?

Promoters of real-world asset tokenization claim that they can lower barriers to real estate investing by allowing retail investors into the types of deals that once required high investment minimums and limited access to accredited investors. While the low cost and ease of entry into the real estate tokenization market are real, major challenges remain for retail investors to understand the risks posed by the tokens, as well as those posed by the underlying properties themselves.

Under the current regulatory framework, if a real estate token offering meets the Howey test, it is an investment contract and thus a security. The transaction then must be registered with the SEC or exempted.

Real estate token issuers typically rely on exemptions such as Regulation A, Regulation Crowdfunding, Regulation D and Regulation S. Each of those exemptions has various limitations on solicitation, investor accreditation and amounts raised, as well as other aspects of the offering.

States such as New York and California also have their own regulations that tokens must comply with. State securities regulators have identified schemes tied to digital assets as a top threat for retail investors.[8] It is far from clear whether real estate tokens generally comply with all of the federal and state investor protection regimes that apply to them.

In addition to being exposed to fraud and misrepresentation by token issuers, retail investors are also exposed to real-world problems relating to their investments that can rapidly interrupt cash flows and investor distributions.

Are tenants protected?

The Detroit RealT lawsuit clearly demonstrates how digital assets and their underlying real-world assets interact in a way that an investor pitch deck cannot. As alleged in the lawsuit, tenants in their properties have suffered for months from lack of heat, leaky roofs and other unsafe conditions. Investors are suffering — albeit only financially — for owning such poorly maintained properties.

Tenants are not without remedies. Many local governments, including Detroit, have significant statutory protections in place for residential tenants. Residential rentals in Detroit must obtain and maintain a certificate of compliance, and courts can effectively halt rent payments or consider noncompliance against landlords in  cases. When units are out of compliance, tenants may be directed to escrow rent until code issues are fixed, as the judge in the RealT case has ordered.

What’s next?

We are just beginning to live in a world of tokenized real estate. The RealT case in Detroit should provide some guidance as to how we should navigate this new world.

But the regulatory environment is not yet clear. Investors do not yet understand what they are investing in. And tenants may be suffering real-world consequences until a whole host of regulatory and business issues are worked out.

The sooner we figure it out, the better for all.

[1] City of Detroit, City of Detroit Announces Major Lawsuit Against Real Token And 165 Related Corporate Entities for Widespread Nuisance Abatement Violations (July 24, 2025), https://detroitmi.gov/news/city-detroit-announces-major-lawsuit-against-real-token-and-165-related-corporate-entities.

[2] Gary Gensler, Chair, U.S. Sec. & Exch. Comm’n, Remarks on the Importance of Oversight and Investor Protection in Our Crypto Markets (Apr. 4, 2022), Securities and Exchange Commission, https://www.sec.gov/news/speech/gensler-remarks-crypto-markets-040422. , 328 U.S. 293 (1946).

[3] Hester Peirce, Comm’r, U.S. Sec. & Exch. Comm’n, Statement on Tokenized Securities, (July 9, 2025), https://www.sec.gov/newsroom/speeches-statements/peirce-statement-tokenized-securities-070925; Paul Atkins, American Leadership in the Digital Finance Revolution (July 31, 2025), https://www.sec.gov/newsroom/speeches-statements/atkins-digital-finance-revolution-073125.

[4] President’s Working Group on Digital Asset Markets, Strengthening American Leadership In Digital Financial Technology 37 (July 2025), https://www.whitehouse.gov/fact-sheets/2025/07/fact-sheet-the-presidents-working-group-on-digital-asset-markets-releases-recommendations-to-strengthen-american-leadership-in-digital-financial-technology/.

[5] Paul Atkins, Chair, U.S. Sec. & Exch. Comm’n, American Leadership in the Digital Finance Revolution (July 31, 2025), https://www.sec.gov/newsroom/speeches-statements/atkins-digital-finance-revolution-073125.

[6] SEC v. W.J. Howey Co., 328 U.S. 293 (1946).

[7] SEC v. Barry, 146 F.4th 1242 (9th Cir. 2025).

[8] NASAA Highlights Top Investor Threats, North American Securities Administrators Association (Mar. 6, 2025), https://www.nasaa.org/75001/nasaa-highlights-top-investor-threats-for-2025/.

Rising Mortgage Borrowing for Seniors

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J. Michael Collins et al. have posted Exploring the Rise of Mortgage Borrowing Among Older Americans to SSRN. The abstract reads,

3.6 million more older American households have a mortgage than 2000, contributing to an increase in mortgage usage among the elderly of thirty-nine percent. Rather than collecting imputed rent, older households are borrowing against home equity, potentially with loan terms that exceed their expected life spans. This paper explores several possible explanations for the rise in mortgage borrowing among the elderly over the past 35 years and its consequences. A primary factor is an increase in homeownership rates, but tax policy, rent-to-price ratios, and increased housing consumption are also factors. We find little evidence that changes to household characteristics such as income, education, or bequest motives are driving increased mortgage borrowing trends. Rising mortgage borrowing provides older households with increased liquid saving, but it does not appear to be associated with decreases in non-housing consumption or increases in loan defaults.

The discussion in the paper raises a lot of issues that may be of interest to other researchers:

Changes to local housing markets tax laws, and housing consumption preferences also appear to contribute to differential changes in mortgage usage by age.

Examining sub-groups of households helps illuminate these patterns. Households with below-median assets and those without pensions account for most of the increase in borrowing. Yet there are no signs of rising defaults or financial hardship for these older households with mortgage debt.

Relatively older homeowners without other assets, especially non-retirement assets, may simply be borrowing to fund consumption in the present—there are some patterns of borrowing in response to local unemployment rates that are consistent with this concept. This could be direct consumption or to help family members.

Older homeowners are holding on to their homes, and their mortgages, longer and potentially smoothing consumption or preserving liquid savings. Low interest rates may have enticed many homeowners in their 50s and 60s into refinancing in the 2000s. Those loans had low rates, and given the decline in home equity and also other asset values in the recession, paying off these loans was less feasible. There is also some evidence that borrowing tends to be more common in areas where the relative costs of renting are higher–limiting other options. Whether these patterns are sustained as more current aging cohorts retire from work, housing prices appreciate, and interest rates increase remains ambiguous.

The increase in the use of mortgages by older households is a trend worthy of more study. This is also an important issue for financial planners, and policy makers, to monitor over the next few years as more cohorts of older households retire, and existing retirees either take on more debt or pay off their loans. Likewise, estate sales of property and probate courts may find more homes encumbered with a mortgage. Surviving widows and widowers may struggle to pay mortgage payments after the death of a spouse and face a reduction of pension or Social Security payments. This may be a form of default risk not currently priced into mortgage underwriting for older loan applicants. If more mortgage borrowing among the elderly results in more foreclosures, smaller inheritances, or even estates with negative values, this could have negative effects on extended families and communities.

Reverse Mortgage Drawbacks

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US News and World Report quoted me in 6 Drawbacks of Reverse Mortgages. It opens,

For some seniors, reverse mortgages represent a financial lifeline. They are a way to tap into home equity and pay the bills when meager savings won’t do the job. Others view this financial product with suspicion and point to stories of seniors losing their homes because of the fine print in the paperwork.

Amy Ford, senior director of home equity initiatives and social accountability for the National Council on Aging, says regulatory changes were made in recent years to eliminate many of the horror stories associated with reverse mortgages gone wrong. Home equity conversion mortgages – as reverse mortgages through the Federal Housing Administration are known – now incorporate many consumer protections. These help seniors ensure they can afford the loan and are aware of its potential consequences.

“It’s a magic credit line,” says Jane Bryant Quinn, AARP Bulletin personal finance expert, when asked why people would want a reverse mortgage. “It increases every year at the same rate as the interest you pay.” She recommends that seniors consider taking out a HECM line of credit and then borrowing against it sparingly. That way, retirees have protection against inflation and a source of income in the event of a down market.

Despite their appealing benefits, some financial experts urge caution. “I wouldn’t say there is no place for reverse mortgages,” says Ian Atkins, financial analyst for Fit Small Business. “But that doesn’t make a reverse mortgage a good option for everyone.”

Here are six drawbacks to reverse mortgage products.

1. Not every reverse mortgage has the protections of a HECM. While HECMs are the dominant player in the reverfederally insured

consumer proptection

se mortgage market, seniors could end up with a different product. Atkins says single purpose reverse mortgages are backed by a state or non-profit to allow seniors to tap home equity for a specific purpose, such as making home repairs or paying taxes. There are also proprietary reverse mortgages, sometimes called jumbo reverse mortgages, available to those who want a loan that exceeds the HECM limits.

These proprietary reverse mortgages make up a small portion of the market, but come with the most risk. They aren’t federally insured and don’t have the same consumer protections as a HECM.

A reverse mortgage can be a lifesaver for people with lots of home equity, but not much else.

“Another common issue with [proprietary] reverse mortgages is cross-selling,” Atkins says. “Even though it may not be legal, some companies will want to push investments, annuities, life insurance, home improvements and any other number of products on their borrowers.”

2. Other people in the house may lose their home if you move. HECMs are structured in such a way that once a borrower passes away or moves out, the balance on the loan becomes due. In the past, some reverse mortgages were taken out in one person’s name and the non-borrowing spouse’s name was removed from the title. When the borrowing spouse died or moved to a nursing home, the remaining husband or wife often needed to sell the house to pay off the loan.

“There are now some protections for those who were removed from titles,” Ford says. However, the protections extended to non-borrowing spouses do not apply to others who may be living in the house.

A disabled child, roommate or other relative could wind up without a place to live if you take out a reverse mortgage, can no longer remain in the home and don’t have cash to pay off the balance. “If it’s a tenant, you might not care,” says David Reiss, a professor at Brooklyn Law School and author at REFinBlog.com. “But if it’s your nephew, you may care.”

3. Your kids might be forced to sell the family home. If you’re hoping to pass your home on to your children, a reverse mortgage can make that difficult. Unless they have cash available to pay off the loan, families may find they have no choice but to sell once you’re gone.

That isn’t necessarily a reason to rule out a reverse mortgage, but Ford encourages parents to discuss their plans with family members. Everyone with a stake in the home – either emotional or financial – should understand what happens to the property once the borrower can no longer live there.

4. The mortgage balance might be due early if you have trouble paying your property taxes, insurance or homeowners association fees. Reiss says the marketing for some reverse mortgages can make seniors feel like the product is a cure-all for money problems. “There’s this promise that reverse mortgages will take care of your finances,” he says. “What they don’t mention is that your mortgage doesn’t cover your property taxes.”

If a borrower fails to pay taxes, maintain insurance or keep current with homeowners association dues, the lender can step in. Ford says many companies will try to work with a borrower to address the situation. However, repeated missed payments could result in the loan being revoked.

Financial counseling requirements for HECMs are designed to prevent these scenarios. Quinn says some companies will take additional precautions if warranted. “If the lender thinks there’s a risk you’ll run out of cash, it will set aside part of the loan for future taxes and insurance,” she says.

5. Fees can be high. The Consumer Financial Protection Bureau notes reverse mortgages are often more expensive than other home loans. “Don’t just assume that because it’s marketed to seniors without a lot of money, that it is the most cost-efficient way of solving your [financial] problem,” Reiss says. Depending on your needs, a traditional line of credit or other loan product may be a cheaper option.

Housing Tomorrow’s Seniors

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Harvard’s Joint Center for Housing Studies has issued a report, Projections & Implications for Housing a Growing Population: Older Households 2015-2035. The report opens,

Over the next twenty years, the population aged 65 and over is expected to grow from 48 million to 79 million. Meanwhile, the number of households headed by someone in that age group will increase by 66 percent to almost 50 million—with the result that by 2035, an astounding one out of three American households will be headed by someone aged 65 or older.

Older adults’ homes and living situations are keys to their quality of life and capacity to live independently. The expansion of the older population will increase the need for affordable, accessible housing that is well-connected to services well beyond what current supply can meet. In addition, the home is an increasingly important setting for the delivery of long-term care, a trend likely to grow over the next two decades as millions more seek to remain in their current dwellings while coping with disabilities and health challenges.

Over the next two decades, many older households will have the financial means to secure housing and supportive services suited to their needs as they age. The focus for these households should be on making informed choices about potential living situations and locations, investments in home modifications, and care—before physical or financial needs become pressing.

Yet over the same period, millions of low-income older households will struggle to pay for appropriate housing and necessary supportive services. For these households, basic housing costs will drain resources needed to pay for home modifications or in-home services, and may force reductions in spending on critical needs like food and healthcare.

The nation is now at the beginning of a twenty-plus-year surge in the older population, and is thus at a critical point for putting in place the affordable housing options, accessibility features, and in-home care services that will be needed over the next two decades. Transportation and technologies to ensure people can remain engaged in their communities and access supportive services are also needed. While many older adults indicate that they prefer to age in their current residences, a wider array of housing types can offer safer, more affordable, and lower-maintenance homes within existing communities, improving housing situations without uprooting older adults from the places they have called home for years or even decades. (4-5)

The report obviously raises important points about the need to plan for the aging of the American population. I am not hopeful, however, that the federal government will be offering leadership on these issues. It will be up to the states to identify policies that the can implement. Some proposals that are worth a look include

  • providing incentives to include accessibility (or at least accessibility-ready) features in new construction;
  • strengthening the ties between health care and housing; and
  • increasing public awareness of the benefits of planning for the challenges of aging before they actually arrive.

Should Seniors Pay Off Their Mortgages?

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TheStreet.com quoted me in Should Seniors Pay Off Their Mortgages? It opens,

Increasingly, seniors are going against the conventional retirement wisdom about mortgages which, always before, preached that a cornerstone of a good retirement was to enter it debt free. That meant without a mortgage.

And yet about one-third of homeowners 65 and older have a mortgage now. That’s up from 22% in 2001. Among seniors 75 and older, the rate jumped from 8.4% to 21.2%.

The appeal, of course, is that home mortgages are cheap; 30-year fixed-rate loans are going out under 3.7%, and 15-year fixed rates can be had for 3.1%.

That puts the question in sharp focus: is this good financial planning or is it reckless?

Understand: age discrimination is flatly illegal in home loans. But law does not dictate financial prudence and the question is: is it wiser to pay off a home mortgage if at all possible – which used to be the prevailing wisdom? That still brings a sense of relief, too. Tim Shanahan of Compass Securities Corporation in Braintree, Mass. said: “It’s a great feeling to have no debt and a significant accomplishment to be able to tear up the mortgage.”

True.

But is this still the smartest planning? As more seniors take on home mortgages, experts are re-opening the analysis.

“The short answer to the question is it depends,” said certified financial planner Kevin O’Brien of Peak Financial Services in Northborough, Mass. O’Brien is not being cute. So much of this is individual-centric.  O’Brien continued: “It depends on how strong the person’s cash flow is or not. It depends on how much liquid savings and investments they have after they might pay it off. It also depends on the balance they need to pay off in relation to their sources of cash flow, and liquid assets.”

Keep in mind, too: today’s retirement is not yesteryear’s. About one senior in four has told researchers he plans to work past 70 years of age. That means they have income. Also, at age 70, a person has every reason to claim Social Security – there are no benefits in delaying – so that means many 70+ year-olds now have two checks coming in, plus what retirement savings and pensions they have accrued.

That complexity is why Pedro Silva of Provo Financial Services in Shrewsbury, Mass offered nuanced advice: “We like to see clients go into retirement without mortgage debt. This monthly payment can be troublesome in retirement if people are using pre-tax money, such as IRAs, to pay monthly mortgage. That means that they pay tax on every dollar coming from these accounts and use the net amount to pay the mortgage.”

“If clients will carry a mortgage, then the low rates are a great opportunity to lock in a low payment,” Silva continued. “We encourage those folks who don’t foresee paying off their home in retirement, to stretch the payments as long as possible for as low a rate as possible.”

David Reiss, a professor at Brooklyn Law and a housing expert, offered what may be the key question: “I think the right question is – what would you do with your money if you did not pay off the mortgage? Would it sit in a savings account earning 0.01% interest — and taxable interest, at that? Paying off your mortgage could give you a guaranteed rate that is equal to your mortgage’s interest rate. So if you are paying 4.5% on your mortgage and you take money from your savings account that is not spoken for — like your emergency fund — you would do way better than the 0.01% you are getting in that savings account, even after taxes are taken into account.”

 

REFinBlog has been nominated for the second year in a row for The Expert Institute’s Best Legal Blog Competition in the Education Category.  Please vote here if you like what you read.

Can Seniors Get Mortgages? Should They?

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TheStreet.com quoted me in Can Seniors Get Home Mortgages? Should They? It reads, in part,

Senior citizens can and are getting approved for mortgages, and we are not talking reverse mortgages or home equity lines of credit, but – in many cases – 30-year fixed loans. Even when the borrower might be 85 and the actuarial probability of making it to the end of the loan term is nil.

The federal government is blunt: age cannot be used to discriminate against applicants for home loans. Capacity to repay is a factor – for seniors and every other borrower – but a lender cannot turn down an applicant just because he is 65…or 75…or 85. And loans are getting made.

Which raises the other question: is it wise for the borrower? Bankers can take care of themselves, but seniors need to ask: should I be borrowing a lot of money on a house at my age?

In Vancouver, Wash., Dick Kuiper – who said he is “approaching 70,” as is his wife – “just purchased a new home last year and got a 30 year mortgage at just under 3%, and we both believe this was a brilliant move.”

“We first made sure we made a large enough down payment so we would always have positive equity in the home,” Kuiper elaborates. “With that calculated, we looked at the alternatives, either pay in cash – which would naturally come out of our savings – or take out a mortgage. We looked at what we could get by putting the same amount of money into a retirement annuity with a downside guarantee. That annuity pays a minimum of 5% for life and currently is paying in the 8% to 9% range. Do the math. We’d be crazy to pay cash for the house.”

Kuiper’s right. For his wife and him, it made no sense to pay cash for a house – not when mortgage rates are breathtakingly low.

Case closed? Not at all.

Ash Toumayants, founder of financial advisors Strong Tower Associates in State College, Pa., said that in his experience few seniors ever want another mortgage in retirement after they settled up on their first one. “Most are excited when they pay it off and don’t want another one,” Toumayants says.

Another fact: to get a mortgage, a senior has to demonstrate to a lender a capacity to repay. Age cannot be used against a senior, but lack of cashflow can. And many seniors just have sizable trouble qualifying for a mortgage. “The trick is whether they have enough income to qualify or not,” said Casey Fleming, a mortgage expert in Northern California who said that he right now is working on a loan for an 85-year-old client.

Brian Koss, executive vice president of Mortgage Network, an independent mortgage lender in the eastern U.S., elaborated: “For seniors thinking about getting a mortgage, it’s all about income flow. If you have a consistent source of income, and a mortgage payment that fits that income, it makes sense. Something else to consider: if you have income, you have taxes and a need for a tax deduction. With a mortgage, you can write off the interest.”

*     *     *

But then there is an ugly issue to confront. Is the senior arriving at this purchase decision on his own steam? Brooklyn Law professor David Reiss explained why that needs to be asked. “Seniors should discuss big financial moves with someone whose judgment they trust (and who does not stand to benefit from the decision). Elder financial abuse is rampant.”

Reiss added: “What has changed in their financial profile that is leading them to do this? Is someone – a relative, a new friend – egging them on or leading them through the process?” Reiss is right in the caution, and that’s a concern that has to be satisfied.

Retiring with a Mortgage

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MassMutual quoted me in Is it OK to Retire with a Mortgage? It opens,

The conventional wisdom is that you should pay off your mortgage before you retire. Yet, about 4.4 million retired homeowners still had a mortgage in 2011, according to an analysis of American Community Survey data by the Consumer Financial Protection Bureau (CFPB). More than half of them spend 30 percent or more of their income on housing and related expenses, a percentage that may be uncomfortably high even for working homeowners.

Not having to put such a large percentage — or any percentage — of your retirement income toward a monthly mortgage payment in retirement will certainly make it easier to meet your other expenses. But is it really so bad to have a mortgage payment during retirement?

“The logic behind the rule of thumb is that your income will go down in retirement, so it would be helpful if your monthly expenses went down significantly as well,” said David Reiss, a law professor who specializes in real estate and consumer financial services at Brooklyn Law School in New York. But if your income from Social Security and a pension (if you have one), and to some extent your assets (the nest egg you plan to draw on for additional retirement income), will be sufficient to make your monthly mortgage payment and meet your other expenses in retirement, there is no real reason that you have to get rid of the mortgage, he said. The key is that keeping your mortgage during retirement should be part of a plan and not a response to a crisis.

More Homeowners are Retiring with a Mortgage

More homeowners retired with a mortgage in 2011 than a decade earlier, according to the CFPB’s analysis of U.S. census data.1 They’re less likely to have their homes paid off because they’re purchasing later in life, making smaller down payments and tapping equity for other purchases.1 In fact, 36.6 percent of homeowners ages 65 to 74 and 21.2 percent homeowners age 75 and older (some of whom may not be retired yet) had mortgages or home equity loans in 2010, according to the Federal Reserve. The median balance was $79,000 for the 65 to 74 age group, and $58,000 for the 75 and up age group.

The CFPB points out two problems with carrying a mortgage during retirement: less accumulated net wealth and the possibility of foreclosure if retirees can’t make their mortgage payments. Foreclosure is harder to recover from when you’re older because you may not be able to return to the workforce to compensate for the loss and because you’re more likely to have health problems or cognitive impairments, the CFPB said.1

Having less accumulated net wealth is a problem, especially if most of your wealth consists of your home equity, which is less liquid than stocks, bonds and cash. Foreclosure is a serious problem if it happens to you, but the odds are slim: even in the aftermath of the housing crisis, in 2011, foreclosure rates were only 2.55 percent for homeowners 65 to 74 and 3.19 percent for homeowners 75 and older.

Some retirement-age homeowners who haven’t paid off their mortgages undoubtedly would rather be debt free but couldn’t afford to retire their home loan sooner. But others might be putting the money that could have gone toward extra mortgage payments to a better use. (footnotes omitted)