Can Heirs Keep The House
Heirs always have the option to keep the house of a loved one who had a reverse mortgage. They can pay off the loan or perhaps even apply for their own reverse mortgage if they qualify. But the choice is theirs, and they never inherit debt.
Given the complexities of real estate, its always a good idea to consult with a financial advisor before making a decision.
This article is intended for general informational and educational purposes only, and should not be construed as financial or tax advice. For more information about whether a reverse mortgage may be right for you, you should consult an independent financial advisor. For tax advice, please consult a tax professional.
Inheriting A Reverse Mortgage As A Spouse Or Co
Many people will inherit a reverse mortgage from their spouse. In general, reverse mortgage loans must be repaid when the borrower dies, and this is normally financed by selling the property.
However, special rules determine what happens to reverse mortgages if you lived with your spouse in a property with a reverse mortgage attached to it. The rules in this area are complex but mainly depend on several factors:
- Whether you are a co-borrower on the reverse mortgage loan. If this is the case, you will be able to remain in the home and receive loan payments as long as you meet the obligations of the reverse mortgage loan.
- When you took out the reverse mortgage. If you are not a co-borrower on the reverse mortgage, you still may be able to stay in your home without paying off the loan. This, in turn, depends on when the loan was originated . To stay in the home, you will have to qualify as an Eligible Non-Borrowing Spouse under U.S. Department of Housing and Urban Development rules. Qualifying to be an Eligible Non-Borrowing Spouse can be difficult, but the process is easier if your spouse took out the reverse mortgage on or after Aug. 4, 2014.
- Whether you were married when the loan documents were signed and continued to be married up until your death. If this is the case, and your spouse took out the reverse mortgage after Aug. 4, 2014, you will qualify as an Eligible Non-Borrowing Spouse and will be able to stay in your home without paying back the reverse mortgage loan.
What Happens To The House After A Reverse Mortgage Borrower Dies
When the borrower of a home equity conversion mortgage passes away, the lender will send a due and payable notice to the estate and heirs, as applicable. This notice generally states how an heir can deal with the property, which includes:
- Selling the property for at least 95% of its appraised value
- Providing the lender with deed in lieu of foreclosure
- Providing payment for the loan balance of the HECM
The lender will order an appraisal if the homes value isnt likely to cover the loan amount. Heirs have 90 days after the borrowers death to let the lender know if they plan to sell the home. They may be eligible for two 90-day extensions, but these need to be approved by the Federal Housing Administration. The request must also be supported by evidence that the heirs are actively working to sell the home. The National Reverse Mortgage Lenders Association provides a helpful guide about what to do when a reverse mortgage loan becomes due.
Its important to note that interest, fees, and mortgage insurance premiums will continue to accrue during this extension window. The lender can initiate foreclosure at 90 days of the borrower passing away if there is no response to the initial due and payable letter from the heirs or if no extension has been requested.
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Nj Home At Auction Despite Familys Wishes
When Grace Bonnicelli thinks of reverse mortgages, she remembers a particularly troubling knock on her mother’s door in 2018. A man asked her sister, Is this house for sale?
She quickly told him no, and he apologized but mentioned that he had seen the posting in the newspaper, Bonnicelli recalled.
The reality was even worse: Not only was the home listed for sale, it had been sold back to the bank at a sheriffs sale the previous day.
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Bonnicelli of New Jersey said her mother had a series of mini-strokes, which impaired her memory. She missed tax and insurance payments on the family home, on which she had taken out a reverse mortgage in 2009.
Those missed payments pushed the loan into default and led the servicer to demand the full $200,000 owed.
The knock at the door was the first Bonnicelli knew of the problem and she, along with her family, sought to fix it. Then came the eviction notice.
There was no negotiation they were soulless, heartless.
There was no negotiation they were soulless, heartless, Bonnicelli said of the loans servicer, which was Champion Mortgage.
Champion did not respond to requests for comment from USA TODAY.
A Champion attorney argued against the delay, saying taxes were late dating back to 2012, which could have triggered a foreclosure years earlier.
Sell The Property To Pay Off The Loan
Most commonly, when the borrower or borrowers on a reverse mortgage pass away, their heirs sell the home to pay off the loan. If your heirs sell the property and the home proceeds are more than the loan balance, your heirs can keep the excess funds.
If the property is sold and there are not enough funds to pay the remaining balance, Federal Housing Administration insurance pays the difference.
The rules protect your family from paying more for the home if you pass away, even if the house isnt valuable enough to cover the reverse mortgage debt. Heirs have 30 days to repay the loan after receiving the due and payable notice from the lender, although this can be extended for up to a year.
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What Are Your Options
When youre left with a reverse mortgage obligation after a parent or loved one dies, you have four ways to deal with it.
You can put the home on the market to pay off the loan. If the propertys value is higher than the loan balance, youd get to use whatever is left over for other expenses. When the loan exceeds the homes equity value, youd only be responsible for paying what the house is actually worth.
You can also pay off the loan so you can hang on to the home. Unless you inherited a large sum of cash along with the house, youll most likely have to finance the loans repayment. In this scenario, youd have to meet certain lending requirements as far as your credit, income and debts go to qualify for a new mortgage.
A third option is to deed the property back to the lender. This is basically a way to avoid foreclosure. The lender becomes the owner of the property and heirs dont bear any further financial responsibility for the home.
There are some advantages to giving the property back compared to the fourth option, which is simply walking away from the home altogether. If the lender forecloses and the home is sold at auction, the homeowners estate could still be held liable for the repayment of the loan debt.
A trusted professional may be of great service to you amid these complicated reverse mortgage matters, and you can use SmartAssets SmartAdvisor matching tool to get paired up with an expert who can cater to your particular needs.
Rules On Loan Balance Of Reverse Mortgage After Death
Most reverse mortgages are Home Equity Conversion Mortgages . These are backed and insured by the FHA and overseen by the U.S. Department of Housing and Urban Development . Government-backed loans provide benefits designed to protect borrowers, surviving spouses, and their heirs.
Furthermore, HECM reverse mortgages are non-recourse loans, meaning a lender cannot seek recourse against other assets for repayment. In other words, a lender may never take a car, investment property, or valuable possession from an estate in an attempt to pay off the reverse mortgage when the owner dies per HECM guidelines.
In summary, if a co-borrowing spouse or heir inherits a home with a reverse mortgage, they will never owe more than the property is worth and they will never be forced into selling their assets to cover the debt. If they sell the home for more than the balance of the reverse mortgage, they can keep the remaining equity as proceeds. They may also choose to keep the home if they can afford to do so, or may sign the property over to the lender without further financial obligation.
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If The Borrower Dies What Happens To The House
So heres the question: how does a reverse mortgage work if you die?
When a homeowner passes away, the responsibility of the house will pass to whoever is indicated in a will. If someone passes away without a will, the property will be bequeathed to direct descendants or close family members.
The heir will then be in charge of paying for the reverse mortgage. There are several options for handling settling the loan.
If there is still money owed for the loan, the borrower can still leave the house to their heirs. If you have a reverse mortgage and pass away, just as you still owned your home, your heir can own the home after your death. But they will need to take care of the loan balance.
Who’s Responsible For The Mortgage After You Die
For legal purposes, everyone has an estate. An estate encompasses everything you own, including cars, clothing, furniture, bank accounts, retirement accounts, and real estate. An estate may be worth millions or next to nothing, but it’s still considered an estate. If you die with a will or trust in place, the legal documents you’ve set up outline who you want to inherit your estate after you’re gone.
If you’re married and your significant other co-signed the mortgage, that surviving spouse becomes the sole owner following your death. If the home was titled in your name only, your heir or heirs inherit the property.
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Inheriting A Reverse Mortgage: A Timeline
Another major source of problems when inheriting a reverse mortgage is the tight schedule involved with doing so. No matter what your relationship is to the person who has passed away, you will need to move quickly to ensure that you maintain control over what happens to their property.
Heres a typical timeline for what happens to a reverse mortgage after the original borrower passes away:
What Is A Reverse Mortgage
A reverse mortgage is a loan exclusively available to seniors over 62 who want to use their built-up home equity. To be eligible, you must own at least 50% of your home and it must also be your primary residence .
Reverse mortgages let seniors get access to funds without having to worry about immediate repayment. But when you leave the home, the reverse mortgage reaches maturity and must be repaid. That process can become tricky when someone passes away and leaves an heir in charge of their estate.
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Taking Care Of A Mortgage After A Death
In many families, the home they live in is the single largest asset they have. If the home carries sentimental value, it may be all the more important to keep it in the family. As a homeowner, you can help prepare your loved ones for the need to assume a mortgage after your death.
Consider buying enough life insurance to make payments on the home or even enough to pay it off. Think about the impact of reverse mortgages on your estate. In general, most families find a way to manage a leftover mortgage. That said, preparing in advance is your best bet.
If you’ve figured out your debts and assets and how they work after you die, you may be ready to take the next step and get a will. Look at the comparisons of the most popular will services and estate planning attorneys below.
Does The Estate Have To Pay The Mortgage Off In Full
What happens to a mortgage when someone dies is a bit different than other outstanding debt. Let’s say when you die, you leave behind credit card debt and an unsecured debt like a personal loan. The debt you leave behind is not forgiven, meaning it will need to be paid off by your estate before any remaining funds are distributed to your beneficiaries. However, a mortgage company will not come after your estate to pay off the mortgage.
To be clear, the mortgage lender still expects to be paid for the property, but they give the heirs a chance to keep the house if that’s what they want to do.
Let’s say you’re single and want to leave the house to your daughter and her family. As long as you name her beneficiary, she’ll have the opportunity to make it her own.
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Old Reverse Mortgage And Equity
With the old Reverse Mortgage when the homeowner passed away there usually was no equity left in the home to inherit. In most instances the family simply let the bank foreclose on the home and sell it themselves. This happened because the Old Reverse Mortgage was designed with high-interest rates and high loan amounts. The combination of high rates and loan amounts made it almost sure the bank would get all of the equity after only 10-20 years.
Do You Have To Repay A Reverse Mortgage
Yes, a reverse mortgage is a loan just like any other loan that does require repayment. The great thing about reverse mortgages though is that you get to choose when and how you repay the loan. There is no payment required on the loan for as long as at least one of the original borrowers on the loan continues to live in the home and pay the taxes, insurance, and any other property charges on time. The loan becomes due and payable after the last borrower or eligible spouse leaves the home, but you can choose to make payments before that time with no prepayment penalty if you desire .
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Taking Over A Mortgage On An Inherited House
Typically, when a mortgaged property transfers ownership, a due-on-sale clause, or alienation clause, requires that the full loan amount be repaid right away. However, there are laws in place to protect heirs of property that allow them to take over the title of the home without triggering the due-on-sale clause.
So, if youre the heir to a loved ones house after their death, you can assume the mortgage on the home and continue making monthly payments, picking up where they had left off.
Additionally, heirs should be able to continue making payments to keep the mortgage current, even if the account hasnt yet been legally assumed by the heir.
There is an exception to this situation, which is when the mortgage has a co-signer. If someone co-signed the mortgage loan, regardless of whether they have any right to ownership over the property, they take over sole responsibility on the mortgage.
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Can Family Members Keep The Home
What happens to your mortgage after you die, and what can you do to make things easier for surviving loved ones? The good news is that heirs are not responsible for loans they have nothing to do with, and you can plan ahead to keep everyone in the homeif thats what they want.
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Pay Off The Reverse Mortgage
A special case that could result in far more mortgage debt than expected is the use of a reverse mortgage. When a person is 62 or older, they can borrow against a home if that homes mortgage has substantial equity.
This creates a periodic or lump-sum loan with the house as collateral. People may take out a reverse mortgage to pay expenses or to increase cash flow during retirement.
However, the total loan amount grows over time as you borrow more and interest grows. You arent allowed to borrow more than the equity you have in the home, as you might expect.
When a home has a reverse mortgage and the owner dies, you may need to sell it to repay the debt. Depending on the terms of the reverse mortgage, there may be little remaining equity in the home.
If you wish to keep the home in this case, it can be tricky. You can buy the home from the lender immediately . Or you can speak with an attorney or housing agency who could help find the time and financing for a new home loan.
What Steps Does An Heir Have To Take To Keep The Property
Imagine there’s a $200,000 balance left on your home when you pass away. Your daughter inherits a property with a $200,000 balance. The balance does not go away. However, if she can swing the payments, your daughter can take over the mortgage and have the title transferred into her name. She won’t even have to take the traditional route to homeownership by filling out an application or going through a credit check.
According to an interpretive rule issued by the Consumer Financial Protection Bureau , after a person dies, the person who inherits their home can be added to the loan as a borrower without going through standard underwriting. In other words, if they have a low credit score, other secured debt, or even if they’ve been caught up in debt collection, they still qualify to assume your loan.
A beneficiary is not required to apply for a new home loan. They can simply be added to the existing mortgage as an owner.
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