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, in this post, we’ll cover what a reverse mortgage foreclosure timeline looks like so that you can prepare in advance.
Reverse Mortgage Foreclosure Timeline
When does a reverse mortgage become due?
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 reason, 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 (home equity conversion mortgage), 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 to 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
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.
How to avoid reverse mortgage foreclosure?
The best way to avoid foreclosure of a Reverse Mortgage is to make the required monthly payments.
Reverse mortgages are not an entitlement and you have committed other obligations that must be met at all times, such as maintaining necessary insurance and paying taxes.
If the house you inherit has a reverse mortgage on it, you are encouraged to contact your lender. You will receive a notice from the lender. By law, you have 30 days to respond to the notice demonstrating your intentions for the property. Foreclosure attorneys will be on hand to provide legal counsel if you are unable to make decisions for yourself.
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.
HUD Reverse Mortgage Foreclosure Guidelines
Under official HUD guidelines, you may have a reverse mortgage loan foreclosure if you do not keep up with your property taxes or homeowners insurance premiums. You should carry both the required insurance and make all necessary payments to prevent a foreclosure.
In some cases, if you cannot pay for taxes and homeowners insurance premiums due to a financial penalty, HUD allows a 30-day period in which you can rectify the issue. If you cannot, the lender may proceed with foreclosure.
To avoid mortgage default, HUD encourages reverse mortgage borrowers to take advantage of reverse mortgage counseling services before taking out a loan. Homeowners also have the option of applying for assistance from their state or county agencies that provide low-interest loans and grants for seniors who need assistance with paying property taxes.
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
A reverse mortgage is a financial tool that allows seniors to live in their homes without making additional payments. However, like any loan, reverse mortgages eventually need to be repaid.
Paying off your mortgage can be complicated, depending on how much equity you have in your house. Reverse mortgage foreclosures come with a few unique considerations, one of which is how your heirs will deal with the property.
When inheriting a home through a reverse mortgage, your options may depend on the circumstances of the foreclosure. Making sure your home is passed to the next generation after you die can be difficult. You need to communicate with your family about what they want for the house.
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:
- Payback the loan and keep the house.
- Sell the house on a reverse mortgage loan
- 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.
What if the reverse mortgage loan balance is more than the appraised value?
The heirs will not have to pay the difference. This is because a reverse mortgage loan is known as a non-recourse loan. Instead, the Federal Housing Administration insurance absorbs that extra cost.
The property transfer tax is based on the loan balance at death. Reverse mortgages are not exempt from this charge, which can result in a sizable bill for heirs who inherit property that has an outstanding reverse mortgage.
A surviving spouse might remain living in the home after your death and be able to defer repayment as long as certain criteria are met.
How long do reverse mortgages take to close?
A Reverse Mortgage takes a couple of weeks to close. After you submit your loan application, the lender will send an appraiser out to do a home inspection. The servicer might also decide that they want their own appraisal done on the property as well before closing it for good and sending over the title deed.
Can you walk away from a reverse mortgage?
Generally, you can walk away from a Reverse Mortgage if you agree to let the lender foreclose. However, this is not always a good idea as Reverse Mortgages can be difficult to get again and you could lose your equity in the property.
If the borrower ceases making payments, the lender may take ownership of the property through foreclosure proceedings without notice, at any time.
Is deed in lieu better than foreclosure of reverse mortgages?
Deed in lieu is not a foreclosure. It’s an option to transfer the property deed back to the lender with no help from Reverse Mortgage Foreclosure Timeline, and it can be completed without any court involvement or delays either.
Can heirs refinance reverse mortgages?
This depends on the Reverse Mortgage Foreclosure Timeline, but in most cases heirs could refinance.
How long does a Reverse Mortgage foreclosure take?
The Reverse Mortgage Foreclosure Timeline is different depending on your state’s laws and how much money you owe on it. It can be anywhere from 180 days to two years for the process to be completed.
Can heirs walk away from a reverse mortgage?
In general, If the property is not occupied, the heirs are no longer responsible for paying off the reverse mortgage. The property is then used to repay the loan balance. Heirs of a reverse mortgage borrower should contact the lender to formally discuss the repayment of a home equity conversion mortgage.
A reverse mortgage is a complex loan, and many borrowers do not completely understand all the terms and requirements. Not having a proper understanding can lead to unfavorable circumstances like foreclosure.
Reverse mortgage foreclosure after death can occur for many reasons including not making timely payments on an existing reverse mortgage loan due to a borrower’s demise or because of unreimbursed funeral expenses, missing monthly installments; failure to maintain the property in accordance with requirements.
If you have any questions about how a reverse mortgage works, or if you’re considering one for yourself, contact Brett Stumm, Reverse Mortgage Specialist today. He will guide you through the loan process, and work with you to prepare a repayment plan so that you can avoid foreclosure.