Reverse Mortgage Foreclosure Timeline: What You Need To Know

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    Reverse mortgage foreclosure timeline
    When someone with a reverse mortgage dies, the loan becomes due and payable. Therefore, there exists the possibility of reverse-mortgage foreclosure. A reverse mortgage lender can pursue a foreclosure to satisfy the loan. But this is the last option, and you can take some steps to avoid it.

    Whether you are a reverse mortgage borrower who doesn’t want the heirs to face foreclosure or someone going through the circumstances, this post explains everything you need to know.

    Reverse Mortgage Foreclosure Timeline (When Does a Reverse Mortgage Become Due and Payable?)

    A home equity conversion mortgage (HECM) becomes due and payable in one of the following circumstances:

    The property is sold, or its title is transferred.

    After you have sold the home or transferred the title for some reasons, a reverse mortgage becomes due and payable. Generally, the escrow company uses the money obtained by selling the house to pay off the reverse mortgage along with other liens. With title transfer, the loan becomes due and payable. 

    You do not occupy the home as a principal residence. 

    With a HECM, if you do not live in the house as your principal residence or, after your death, the property ceases to be the surviving spouse’s primary residence, the reverse mortgage becomes due and payable. In this scenario, you can again occupy the home as your primary residence or pay the full balance.

     You can also sell the property for the lesser of the mortgage balance or 95% of its appraised value and use the proceeds to pay off the reverse mortgage. Another option is complete a deed in lieu of foreclosure, or the loan servicer will pursue foreclosure.

    You do not occupy the home for over 12 consecutive months due to an illness. 

    If you stay away from your home in a senior care facility for up to 12 consecutive months because of mental or physical illness, and no other borrower occupies the property as the primary residence, the mortgage becomes due and payable. To pay the debt, you can fix the matter, pay the full balance, or sell the property for the lesser of the mortgage balance or 95% of its appraised value and use the proceeds to repay the loan.

    Alternatively, you can complete a deed in lieu of foreclosure, or the loan servicer will pursue foreclosure.

    You do not meet the loan obligations. 

    On a reverse mortgage, you have to pay property taxes, maintain the reverse mortgage insurance and make necessary home repairs.  Failing to meet any of these criteria constitutes a violation of the mortgage, and the lender can announce the loan due. The lender should allow you to cure the default to avoid a foreclosure.

    Reverse Mortgage Foreclosure Heirs

    If the house you inherit has a reverse mortgage on it, you are encouraged to contact your lender.

    You will receive a Due and Payable notice from the lender. By law, you have 30 days to respond to the notice demonstrating your intentions for the property. You will have six months to either repay the reverse mortgage debt or purchase the house for 95% of its current appraised value. You can pay back the debt by selling the house or using other funds.

    Reverse Mortgage Foreclosure Extensions

    The heirs may request up to two 90-day extensions past the initial deadline and seek HUD’s approval. The loan servicer may help you through the extension request approval process. In this case, you have to demonstrate that you are actively making efforts to satisfy the debt. You have to update your loan servicer and the HUD every 30 days during the extension period.

    If you fail to respond to the lender’s correspondence or the 90-day extensions expire without you paying the debt, the lender may pursue a foreclosure.

    Reverse Mortgage Foreclosure After Death

    In the event of death, the lender must be notified within 30 days of the borrower’s death. It is based upon the actual date of death, not on the date of notifying the servicer.

    If all borrowers have died, the heirs have the following options:

    • Pay back the loan and keep the house.
    • Sell the house on a reverse mortgage
    • Deed the house to the lender
    • Let the lender foreclose
    A non-borrowing spouse might occupy the home after your death, and the loan repayment is deferred as long as the surviving spouse meets certain criteria.

    Conclusion

    A reverse mortgage is a complex loan, and many borrowers do not completely understand all the terms and requirements. Not having proper understanding can lead to unfavorable circumstances like a foreclosure.

    If you are dealing with a foreclosure or planning to borrow a reverse mortgage, you can contact Brett Stumm today. The reverse mortgage specialist will guide you through the loan process, work with you to prepare a repayment plan so that you can avoid foreclosure.

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