Reverse Mortgages and Natural Disasters

Michael G. Branson     5/12/10 10:51pm

earthquake, flood, fire

We have had several inquiries lately from senior borrowers who have wanted to know what would happen to their home if they were unable to occupy the property for an extended period of time due to a natural disaster such as an earthquake, flood or tornado which rendered the property uninhabitable for longer than the 12 months that their reverse mortgage documents state they can be absent from their home. In all honesty, we did not have experience with these kind of circumstances so we also turned to the experts.

We contacted Ryan LaRose, Chief Operating Officer of Celink, the nation's largest sub servicer of reverse mortgages. Since Ryan previously served as the company's EVP of Reverse Mortgage Servicing, we knew we were getting the best answer available.

When a natural disaster strikes the holder of a reverse mortgage, HUD allows the borrowers up to 12 months to re-occupy the property. At that time, if the borrowers are still not occupying the property as their primary residence, then the loan would be called "due and payable". However, the mere act of calling the loan due and payable does not mean that the senior borrower loses the home at this point. The Mr. LaRose explained that the borrower could then potentially get up to 12 months in additional extensions if they were making an honest effort to cure the default or satisfy the debt.

Mr. LaRose was quick to point out that while borrowers should do everything in their power to be back in the property within the 12 month period or within the extensions granted by HUD, that both Fannie Mae and HUD did grant case-by-case extensions on a longer basis to these requirements to reverse mortgage holders when they were affected by Hurricane Katrina (HUD insures the loans through the Federal Housing Administration -FHA- and Fannie Mae is a very large owner of reverse mortgages).

This supports the comments we have always made to borrowers, that HUD does not want to own your home and that good communication is the key. If the lenders see that you are working diligently toward the repair and re-occupancy of your property and they know that they cannot do it any faster, they are going to work with you.

In the case of an occupancy default on a reverse mortgage after a natural disaster, it's nice to know that once the property is finished and the borrowers move back in, the default is cured. There is no arduous process the borrower still has to perform. This is why it is so important to keep your lender advised of the status of the process. Once you are out of your home for more than 12 months due to the initial damage, if you do not keep everyone updated they must make decisions without your input.

This is important to know during a time when natural disasters seem to be everywhere. If you are a borrower with a reverse mortgage and you live in an area where flooding, earthquakes, hurricanes, tornados or any other natural disaster may occur, you just need to be sure you are aware of the requirements of the loan.

It's important to do your best to meet the time frames outlined in your loan documents (12 months), but it's also nice to know that your lender and HUD are there to work with you as much as they can and that with extenuating circumstances, HUD and Fannie Mae have both granted case-by-case extensions beyond a total of 24 months when needed.

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By Michael G. Branson, CEO - All Reverse Mortgage Company


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