What If The 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.
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Borrowers With Regular Or Forward Loans Were Not So Lucky
Many of them paid interest on loans that were well above the current value of the homes when the values dropped and some paid until they could not pay any longer and then they had no home to live in anymore and no money to start over.
Your mom was guaranteed a home to live in for as long as she wanted/could and did not have to pay any monthly payments for the entire time she lived there .
Many times, those forward borrowers found themselves with no place to live and no money because they were struggling to make mortgage payments during that time. Your mom has made no payments on her loan for the last 9 years.
Please forgive me I am not insensitive to your moms situation.
It just was not the reverse mortgages fault that the entire economy fell apart and that property values plummeted.
I guess I just look at it a different way, thank goodness mom had a reverse mortgage and not a forward mortgage that may have required her to lose the home earlier without the protections that she has had.
As for the current situation, your mom does not need to worry about anything.
She can move out at her leisure and then once she is out and you have moved all her belongings if none of the other family members want the home, simply call the servicer, and tell them she is out.
They will move to take the property back and you will not even need the assistance of an attorney.
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When You Might Face A Foreclosure
Reverse mortgages offer some advantages. If you have a lot of equity in your home but not much cash, a reverse mortgage might be a good way to get money. Also, HECMs are nonrecourse, which means the lender can’t come after you or your estate for a deficiency judgment after a foreclosure.
But reverse mortgages have significant disadvantages and become due and payableand subject to foreclosurewhen:
- The borrower permanently moves out.
- The borrower temporarily moves out because of a physical or mental illness, like to a nursing home, and is away for over 12 consecutive months.
- The borrower sells the home or transfers title of the property.
- The borrower dies, and the property is not the principal residence of at least one surviving borrower.
- The borrower doesn’t meet contractual requirements of the mortgage, like staying current on property taxes, having homeowners’ insurance on the property, and maintaining the home in a reasonable condition. If the borrower doesn’t pay taxes and insurance on the property, the lender may advance the funds to the lender for those bills initially. If the borrower doesn’t repay the advanced amounts, the lender may call the loan due.
Seniors have often found themselves facing a foreclosure after the lender calls the loan due because of mortgage violations like failing to give the lender proof of occupancy, failing to pay insurance premiums, or letting the home fall into disrepair.
Reverse Mortgage Foreclosure Extensions
The heirs may request up to two 90-day extensions past the initial deadline and seek HUDs 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 lenders correspondence or the 90-day extensions expire without you paying the debt, the lender may pursue a foreclosure.
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How To Avoid Reverse Mortgage Foreclosure
- Communicate with the loan servicer as often as possible. Its important to stay in regular contact with the loan servicer, especially if you need to request extensions to work out a settlement plan.
- Request a repayment plan. Some loan servicers may offer a repayment plan if you qualify.
- Get help from a HUD counselor. A HUD counselor is trained to provide information about foreclosure prevention and may be able to give you helpful tips to avoid foreclosure.
- Refinance to a regular mortgage. You may be able to refinance to a regular, forward mortgage if you meet minimum mortgage requirements.
- Sell your home. A surviving owner or heir can sell the home for 95% of its appraised value without worrying about repaying any reverse mortgage balance above that amount.
- Repay your reverse mortgage with cash. This may be an option for heirs that want to keep the property in the family if they have the cash resources to pay off the loan balance.
- Offer a deed-in-lieu of foreclosure. If no repayment is possible and the heirs dont want to take responsibility for the sale of the home, the deed can be given back to the lender instead of going through foreclosure.
THINGS YOU SHOULD KNOW
If your spouse took out a reverse mortgage but didnt include you on the title because you are under 62 years of age, you may still be able to stay in the home as an eligible non-borrowing spouse if you meet these five conditions:
Protections During Foreclosures And Legal Help
If loss mitigation or a special diversion court doesnt help prevent a foreclosure action, advocates said, seniors need better protection in court.
New York lawmakers passed a rule in 2017 that gives seniors facing reverse mortgage foreclosure the same protections they would have in a traditional foreclosure proceeding in the city. It includes a mandatory settlement conference to discuss ways to stop the foreclosure action.
Beth Shay, an attorney with the Senior Law Center in Philadelphia, said many seniors can handle loan modifications and fix minor servicing issues on their own, or with a counselor, but need legal representation in more tangled situations.
She preaches a network approach, where red flags, such as arrival of a default notice or foreclosure filing, signal a higher level of help with low-cost senior legal aid.
We can take troubling cases straight to HUD through the National Consumer Law Center and help get some resolution, Shay said. But for many seniors on their own, without an attorney, theyll just give up and say this is too frightening to confront when youre 75 years old and theyll walk away.
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Other Options To Consider
If you’re having trouble making your mortgage payments, consider looking into other foreclosure prevention options. A few different options to consider include getting a loan modification, reinstating the loan, working out a repayment plan, or giving up the property in a short sale or deed in lieu of foreclosure. You might also consider selling the home and moving to more affordable accommodations.
How A Reverse Mortgage Deed In Lieu Of Foreclosure Works
My mom procured a reverse mortgage when property values were high, in 2005. She can no longer live alone in the home and has vacated it, we cannot sell it because the home has devalued in accordance with the failed economy. The family is attempting to process, through an attorney, a Deed in Lieu of Foreclosure, but the loan has been transferred to 3 different loan companies since mom vacated the property 5 months ago, and they have ignored the attorneys letters and continue to send mailings telling my mom that they will continue to service her loan as always I want to do a whistle-blower with Clark Howard showing people the cons of procuring one of these loans, in a failed economy. This is just not fair. My mom is 91 years old and I feel will have serious physical health problems over this How do I get them to listen and respond!!!!
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How We Rate Reverse Mortgage Lenders
We independently identify reverse mortgage companies. From there our editors review them in a myriad of ways from years in business, product offerings, loan officer availability, states licensed, digital offerings, customer service, and online reviews amongst other criteria. Our goal is to present objective representations of companies to give consumers informed information to make a decision. Disclosure: We do receive advertising compensation from some partners, which influences what companies appear on our site and where they appear. Review Counsel is a subsidiary of Mutual of Omaha Mortgage, Inc. For additional details please .
You Have Unpaid Taxes Insurance Or Other Fees
If you havent paid your taxes or insurance, pay those right away. If you dont have the funds to make those payments, you may qualify for a HUD-approved repayment plan with your servicer. However, this plan will not cover homeowners or condominium association fees or other similar costs.
If you do not qualify for a repayment plan, talk with an attorney or reverse mortgage housing counseling agency for advice. You also can check with your local Area Agencies on Aging for possible assistance.
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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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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 Are The Pros And Cons Of A Reverse Mortgage
There are several considerations to make before deciding to proceed with a reverse mortgage loan. As with any large decision, its helpful to have an understanding of the pros and cons associated. Some of them include:
- You continue to live in your home and retain title to your home as long as you continue to pay your property taxes, insurance, and maintenance.
- You generally receive the proceeds of the loan as tax-free cash in which you can use the money as you see fit. It is recommended though to speak with your financial advisor to verify your specific situation.
- You do not make any monthly mortgage payments during the course of the loan. You do have to follow the constructs of the loan guidelines and are responsible for paying your property taxes, insurance and maintenance.
- A reverse mortgage is a non-recourse loan. Neither you nor your heirs are liable for any amount of the mortgage that transcends the value of your home.
- You choose the disbursement option. There are several ways in which you can receive the proceeds of the loan.
- Many lenders offer a free reverse mortgage loan calculator which allows you to get an estimate as to how much you may qualify for.
- Fees associated with the loan are generally higher than with other financial products. You should ask your lender about options available.
- The balance of the loan increases over time as does the interest on the loan and the fees associated.
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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How Does A Reverse Mortgage Work
Although some private lenders offer their own version of a reverse mortgage, the most common type of reverse mortgage is a home equity conversion mortgage . This type of reverse mortgage is backed by the Federal Housing Administration . The amount that may be borrowed is based on the appraised value of the home . With an HECM, you can borrow money from a lender with your home as the guarantee on the loan. You can use the proceeds to pay off your existing mortgage or to cover living expenses, medical bills, travel, or other costs.
An HECM is only for homeowners who are age 62 or older. The loan with a reverse mortgage is repaid when you no longer live in the home. If you sell the home and move, move into a nursing home or assisted living facility, or die, then the home is sold to pay the reverse mortgage. Or your heirs can pay off the loan and keep the home.
More Accurate And Compassionate Servicing
Problems crop up for seniors when they receive confusing communication from their loan servicers, which often are totally different from the company they first took out the loan with because of industry turnover.
Sometimes, for instance, seniors have made special arrangements with a municipality to pay property taxes, but that agreement never reached their servicer, triggering an automatic default.
Jim Kowalski, executive director of Jacksonville Area Legal Aid, said servicers and HUD have never incentivized common sense, which can lead to devastating consequences for minor infractions.
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Kowalski represented a client sued for non-occupancy of his home who had been served with notice of the suit at the very home at issue.
The moment they served this elderly man in his home, an alarm bell should have gone off, Kowalski said.
Similarly, he represented a senior sued over a 27-cent bill.
He says servicers must do better at communicating and making decisions that displace vulnerable seniors.
When a lawyer walks up, they should see $0.27 and fold up their tent, Kowalski said. Someone typed it, signed it, filed it, served it and since it was federally insured, somewhere someone with a federal paycheck signed off.
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Your Home Is In Disrepair
If your home is in disrepair, find out exactly which repairs must be completed to comply to stop foreclosure. If you can pay for the repairs, consult with various contractors for estimates and choose one that you trust. Make sure that you have a signed contract of work outlining the agreed-upon terms before any work starts. If you are unable to pay for repairs, talk with your local AAA office to see if there is assistance available to help you cover the costs.
Reverse Mortgages And Foreclosures: What You Need To Know
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In a Nutshell
In theory, a reverse mortgage should be the perfect solution for aging seniors who have a lot of equity in their homes but not enough in their retirement accounts. The lender loans the borrower money up to the full value of the equity in their home. The borrower then gets to live in the home rent-free until they move out or pass away. Unfortunately, a lot could go wrong. This article discusses the causes of reverse mortgage foreclosures as well as ways to avoid or stop them.
Written byAttorney John Coble.
In theory, a reverse mortgage should be the perfect solution for aging seniors who have a lot of equity in their homes but not enough in their retirement accounts. The lender loans the borrower money up to the full value of the equity in their home. The borrower then gets to live in the home rent-free until they move out or pass away.
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Using A Reverse Mortgage To Prevent A Foreclosure
If you qualify for a HECM and are struggling to make payments on your regular mortgageand you’re facing a possible foreclosuregetting this kind of loan might be one option for saving your home. After the reverse mortgage proceeds pay off the existing mortgage, the foreclosure stops and you won’t have to make any more monthly payments. Sounds pretty appealing, right? But there are downsides to using a reverse mortgage in this way.
One downside is that the borrower loses some or most of the equity thats built up over the years. Another downside is that fees on reverse mortgages tend to be high. Also, the reverse mortgage lender can call the loan due if and when one of the following events happens:
- The borrower permanently moves out of the home.
- The borrower moves out of the home short-term due to a physical or mental illness, and is gone for over a year.
- The borrower sells the home or deeds the home to a new owner.
- The borrower passes away and no remaining borrowers remain in the home. .
- The borrower doesnt meet the mortgage requirements, like paying property taxes, having homeowners insurance on the property, and keeping the home in good condition.
Once the lender calls the loan due, the loan has to be repaid or the lender will foreclose. Reverse mortgage lenders have a reputation for quickly starting a foreclosure after a default, even if a violation is relatively minor.