What Happens To A Property With A Reverse Mortgage When The Owner Passes Away
The loan is considered payable and due when a borrower passes away. In a reverse mortgage, the lender does not own the property so the lending institution may not sell the house on notification the borrower has died or the last eligible non-borrower spouse has passed away. The borrower will always retain the title to the home. With that said, heirs will need to decide how they would like to proceed with the estate within a set time period.
If there is a non-borrower who is living in the home who is not a spouse approved to remain in the home when the borrower passes away or moves away, the loan is still due. In this case, other occupants may need to make arrangements for another living situation. Find out more about reverse mortgages by clicking the link below.
If Your Spouse Or Partner Is A Co
When you and your spouse are co-borrowers on a reverse mortgage, neither of you have to pay back the mortgage until you both move out or both die. Even if one spouse moves to a long-term care facility, the reverse mortgage doesnt have to be repaid until the second spouse moves out or dies.
Because HECMs and other reverse mortgages dont require repayment until both borrowers die or move out, the Consumer Financial Protection Bureau recommends that both spouses and long-term partners be co-borrowers on reverse mortgages.
How To Repay The Money You Borrow
You don’t need to make any regular payments on a reverse mortgage. You have the option to repay the principal and interest in full at any time. However, you may have to pay a fee to pay off your reverse mortgage early.
You have to repay the amount left owing when:
- you sell your home
- you default on the loan
You could default on a reverse mortgage by:
- using the money from the reverse mortgage for anything that is illegal
- being dishonest in your reverse mortgage application
- letting your home fall into a state of disrepair that would lower its value
- not following any conditions in your reverse mortgage contract
Each reverse mortgage lender may have their own definition of defaulting on a reverse mortgage. Ask your lender what could cause you to default.
When you die, your estate has to repay the entire amount owing. If multiple individuals own the home, the loan has to be repaid when the last one dies or sells your home.
The amount of time that you or your estate has to repay a reverse mortgage may vary. For example, if you die then your estate may have 180 days to pay back the mortgage. However, if you move into long-term care, then you might have one year to pay it back. Make sure you ask your lender for information about the timing for paying back a reverse mortgage.
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Would You Benefit From A Reverse Mortgage
A reverse mortgage might sound a lot like a home equity loan or a home equity line of credit . Indeed, similar to one of these loans, a reverse mortgage can provide a lump sum or a line of credit that you can access as needed, based on how much of your home youve paid off and your homes market value. But unlike a home equity loan or a HELOC, you dont need to have an income or good credit to qualify, and you wont make any loan payments while you occupy the home as your primary residence.
A reverse mortgage is the only way to access home equity without selling the home for seniors who either dont want the responsibility of making a monthly loan payment or cant qualify for a home equity loan or refinance because of limited cash flow or poor credit.
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What Happens After Death
After the passing of the last surviving borrower, the reverse mortgage loan balance becomes due and payable. Many believe that the home reverts to the bank upon the death of the last borrower, but that is not the case.
Your heirs will have the option to decide whether they want to repay the loan balance and keep the home, sell the home and keep the equity or simply walk away and let the lender dispose of the property.
If they choose to keep the home, they will need to repay the loan and that means either refinancing the loan with new financing or with other money available to them. They can pay off the loan at the lower of the amount owed or 95% of the current market value.
If they wish to sell the home, they need to make sure that they take whatever steps are required to change the title so that they can sell the home and we encourage borrowers to contact an estate attorney to be sure they are taking the property steps for their circumstances.
The lender will work with heirs and if they are refinancing into a loan of their own they will typically give them up to 6 months to close that loan, or up to 12 months if they are selling the home.
Every 3-month extension may require evidence the home is listed for sale on the MLS. During this time, the lender or the lenders servicer will want to see the efforts of the family to sell and this is where the communication is important.
I Currently Have A Mortgage On My Home Can I Still Get A Reverse Mortgage
Yes, although any reverse mortgage lender will require that the proceeds from a reverse mortgage will first go to pay off the balance of your existing mortgage. As such, an existing mortgage will limit the amount of the net loan proceeds you will receive under a reverse mortgage. When considering whether a reverse mortgage is right for you, it is important to discuss with a housing counselor whether the net loan proceeds will be enough to enable you to live in your house. A list of New York non-profit housing counseling agencies is available.
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What A Reverse Mortgage Costs
The cost of the loan depends on:
- how much you borrow
- how you take the amount you borrow
- the interest rate and fees
- how long you have the loan
Over time, your debt will grow and your equity will decrease .
See how much a reverse mortgage would cost over different time periods, such as 10 or 20 years.
Your lender or broker must go through reverse mortgage projections with you, showing the impact on your home equity over time. Get a copy of this to take away, and discuss it with your adviser. Ask questions if theres anything youre not sure about.
Before You Take Out A Reverse Mortgage Learn The Risks Under Certain Circumstances You Could Face A Foreclosure
Update: HUD imposed a foreclosure moratorium for FHA-insured loans, including reverse mortgages, because of the coronavirus. Also, you can ask your servicer to delay calling a reverse mortgage due for up to six months. If you need more time, you can potentially get six more months if the U.S. Department of Housing and Urban Development approves an extension, and even longer in some cases.
Reverse mortgages are often hyped as a great way for senior citizens to easily get extra spending money. While reverse mortgages offer a few advantages, they also have significant downsides. For one thing, a reverse mortgage might be foreclosed in a number of different circumstances. Also, they tend to be expensive.
Before you take out a reverse mortgage, learn how they work, as well as the advantages and notable disadvantages associated with these kinds of loans.
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Can You Refinance A Reverse Mortgage
Yes. You can refinance a reverse mortgage as long as it has been at least 18 months since you closed on the original reverse mortgage. Due to the exceptionally high origination fee and other fees, refinancing a reverse mortgage should be reserved for situations where a spouse needs to be added to the loan, more equity is needed, or the interest rate can be lowered substantially.
Heirs Dealing With Reverse Mortgages Often Face Roadblocks
Heirs who want to work out a way to pay off a reverse mortgage and keep the home, or sell it to repay the loan, often face months of red tape, frustration, and often foreclosure when dealing with the loan servicer. Shoddy loan servicing practices often hinder what should be routine paperwork, interest calculations, and communications with heirs.
If you take out a HECM and have a nonborrowing spouse, your spouse might be able to remain in the home after you die, and the loan repayment deferred, so long as certain criteria is met. The rules are complex and different depending on whether you took the loan out before or after August 4, 2014.
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What Does It Cost To Apply For A Reverse Mortgage
Before closing on a proprietary reverse mortgage under New Yorks Real Property Law Section 280 or 280-a, the only charges a lender may collect from a borrower before closing are an application fee, an appraisal fee, and a credit report fee. That application fee must be designated as such and may not be a percentage of the principal amount of the reverse mortgage or of the amount financed. For a HECM loan, there generally is no separate application fee as that fee is include in the origination fee collected at closing.
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.
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When Does A Reverse Mortgage Become Due And Payable
Once a triggering event occurs, the reverse mortgage loan becomes due and payable. This means that the total amount of money the lender has disbursed to the borrower, plus interest and fees accrued during the life of the loan, must be repaid.
A HECM reverse mortgage loan becomes due and payable when one of the following circumstances occurs.
Do I Have To Complete In
The answer depends on the type of reverse mortgage loan for which you are applying. In New York, in order to get a proprietary reverse mortgage loan , the borrower must either complete in-person counseling or waive such requirement in writing. In order to get a HECM reverse mortgage loan , a borrower may not waive the counseling requirements but he or she may opt to complete the required counseling either in person or over the telephone. You can find a list of non-profit housing counselors on the Departments website.
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Six Steps Advocates Say Would Curb Reverse Mortgage Foreclosure
For many homeowners, reverse mortgages are relatively safe, because the borrower is insulated from ever owing more than the initial appraised value of their home.
Problems emerged in the wake of full-draw loans 8 in the late 2000s, when reverse mortgage lenders issued a lump sum to a borrower. Sales picked up as Americans began struggling financially and property values eroded.
Since reverse mortgages assume the home will continue to appreciate, loan balances in some cases ballooned well past the market value of a post-recession home. Inflated appraisals also played a role.
Leroy Roebucks home was appraised at $112,000 in 2008. That allowed him to take out up to $83,000 in equity. By the time he was solicited for a second reverse mortgage, an appraiser said it was worth $241,000, allowing him up to $163,000 more. He borrowed $102,000 in all.
The 104-year-old house near Temple University is worth far less today, about $165,000.
At the National Reverse Mortgage Lenders Association 9, President and CEO Peter Bell said ideal borrowers didnt always match up with those targeted.
Were paying for an era where people were borrowing to survive, Bell said. We now look for people that are comfortable in their retirement with a plan and resources to maintain their basic obligations but could use a little extra help for a particular need or quality of life.
Foreclosure Of Reverse Mortgages During Covid
In light of the coronavirus outbreak, keeping people out of foreclosure and in their homes has become increasingly important. To this end, the federal government and some states, entities, localities, and various mortgage companies, imposed foreclosure moratoriums. When a foreclosure moratorium is in place, the loan servicer generally cant initiate or go ahead with a foreclosure.
The U.S. Department of Housing and Urban Development , which regulates FHA-insured reverse mortgages, has set a foreclosure moratorium. HUD has also instructed servicers to, upon request, delay calling a reverse mortgage loan due, thus delaying a potential foreclosure.
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What Is The Role Of My Reverse Mortgage Company/servicer
Your reverse mortgage company will ask you to certify on an annual basis that you are living in the property and maintaining the property. Additionally, your mortgage company may remind you of your property-related expensesthese are obligations like property taxes, insurance payments, and HOA fees. However, these expenses are your responsibility so be sure youve set aside enough money to pay for them and make sure to pay them on time.
Can A Reverse Mortgage Be Foreclosed
As mentioned, it is possible for a reverse mortgage to be foreclosed. Reverse mortgage foreclosure typically happens when:
- Its the natural resolution of a reverse mortgage after the borrower passes away.
- The balance due exceeds the homes value.
- There is no next of kin to handle a sale.
Even though reverse mortgages dont require a monthly principal and interest mortgage payment during the life of the loan, there are other borrower obligations contained in the reverse mortgage loan agreement. The borrower has agreed to occupy and maintain the home as well as pay all property-related charges. Failure to do these things will cause the loan to mature. When a loan maturity event happens, the borrower or their beneficiaries will often sell the home to pay off the loan balance.
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You Live With Someone
If you have friends, relatives, or roommates living with you who are not on the loan paperwork, they could conceivably land on the street after your death. Those boarders may also be forced to vacate the home if you move out for more than a year because reverse mortgages require borrowers to live in the home, which is considered their primary residence.
If a borrower dies, sells their home, or moves out, the loan immediately becomes due. One solution is to list your boarders on the loan paperwork however, no one living with you under the age of 62 may be a borrower on the reverse mortgage.
Avoiding Foreclosure For Unpaid Property Taxes Other Property Charges
A reverse mortgage is subject to foreclosure for unpaid property charges, including property taxes, homeowners insurance, homeowner association fees, and the like, and for failure to maintain the home properly or perform needed home repairs. One way to avoid such a foreclosure is, at the time the mortgage is issued, the lender can set aside funds from the available reverse mortgages principal limit to pay these expenses during the homeowners expected loan term.
If the homeowner still falls behind on these property charges, foreclosures may result. For property charge defaults for HECM mortgages, homeowners have certain protections. Typically, instead of declaring a delinquency, the lender elects to pay outstanding property charges by withholding amounts from monthly payments or by charging amounts to a line of credit. This solution works so long as loan funds remain available to draw.
Borrowers also have the option to cure the default and reinstate the loan, even after foreclosure has been initiated, subject to three limitations: the loan was not reinstated in the past two years the reinstatement will not prevent the loan from becoming due and payable at a later date and reinstatement will not adversely affect the priority of the lien.
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Reverse Mortgages Have A Bad Reputation
USA Today ran an investigative piece on reverse mortgage foreclosures, which showed that some dishonest reverse mortgage companies take advantage of older adults by preying on their forgetfulness.
For example, one reverse mortgage servicer foreclosed on a widow because she forgot to change the property deed into her name. Another reverse mortgage borrower forgot to pay a relatively small insurance payment that increased to over $20,000 with fees as the reverse mortgage servicer tried to foreclose. The man has now been fighting foreclosure for years.
The article also highlights several examples of deceptive advertising by reverse mortgage companies. Many of these companies have been sanctioned by the Consumer Financial Protection Bureau and different states. Some of these companies are very well-known because of TV commercials with celebrity endorsements.
Reverse mortgages can be a good idea if they’re handled right. Before taking out a reverse mortgage, discuss it with your family. If you have a relative or close friend that works in the mortgage industry, they could be a good source of advice. The Federal Trade Commission also provides great resources to better understand reverse mortgages.