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How Will a Reverse Mortgage Impact my Kids and Family?

February 10th, 2012
     

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How Will a Reverse Mortgage Impact my Kids and Family? 

In researching and weighing the pros and cons of a reverse mortgage, a common question probably comes to mind: How will a reverse mortgage impact my children and family?

The most important thing to remember is that your children and family will never be on the hook for repaying a loan that exceeds the value of your home once the time comes to repay the loan. When you get a federally-insured Home Equity Conversion Mortgage (HECM), there’s a government guarantee which specifies that if you pass away or move from the home, your family or heirs will never owe more than your home is worth.

Live-in Family Members

For a reverse mortgage borrower whose children or family live in the home, there is the consideration of how those live-in family members will be impacted by the loan. If they are not on the home title and are not on the reverse mortgage, they will have to move from the home once the loan becomes due and payable.

If the borrower passes away or moves from the home permanently, any children / heirs will have the right to sell or refinance the home, but will not be able to stay in the home unless they repay the loan. The same is true for non-borrowing spouses, which is why it is very important to consider the implications of removing a spouse from the home title, which is possible, but not recommended.

Informing Family Members

Your lender should require any adult children or other people living in the home to sign a document stating they understand that they understand the loan is due once the borrower leaves the home or passes away. Non-borrowing family members are also encouraged to attend the counseling that is a mandatory step in getting a reverse mortgage.

Once the loan does become due and payable, the loan servicer will work with the borrower’s heirs to get the loan repaid.

Anyone living in the home and not on the reverse mortgage will have six months to repay the loan before the servicer will take over through foreclosure. Heirs will be allowed two additional 90-day extensions after the six month period has passed in order to try to sell the home and repay the loan.

The Reverse Mortgage Guarantee

Ultimately, the reverse mortgage should not have an impact on family members because the loan is made especially for the borrower for whom it is designed to help age in place. By paying for insurance on the loan, you are guaranteed that your family will never inherit loan debt beyond your home’s value.

 

From actual disclosures:

NOTICE TO NON-BORROWING SPOUSE OR RESIDENT
If you are a non-borrowing spouse or resident and plan to reside in the above referenced property, you should be aware of the following possible circumstances:
• The Reverse Mortgage Loan cannot be assumed by the non-borrowing spouse or
resident upon the borrower’s death or change of primary residence.
• If the borrowing spouse predeceases you or otherwise no longer occupies the
property as their primary residence, the reverse mortgage will become due and
payable.

ACKNOWLEDGEMENT
I/we certify that I/we have read the notice set forth above and fully understand the possible consequences of being a non-borrowing spouse or resident.

OWNERSHIP INTEREST CERTIFICATION

If you have an ownership interest in the above referenced property but will not be a borrower under the proposed reverse mortgage, you need to be aware of the following:

The Lender does not recommend or require any changes to the ownership of real property as a condition to making a reverse mortgage loan. However, the reverse mortgage program has certain restrictions that prevent some property owners from being eligible borrowers. These restrictions also prohibit an individual from holding an ownership interest in the property if they are not an eligible borrower. As a result of these restrictions, any non-eligible owners will be required to relinquish their ownership interest in the property. By relinquishing your ownership interest, you are affecting your legal rights.

The Lender strongly suggests that you consult with your financial and/or legal advisor(s) to determine if this reverse mortgage loan is in your best interest. If you continue to reside in the property after divestiture and the borrower predeceases you or no longer occupies the property as their primary residence, the reverse mortgage will become due and payable. Typically, the borrower’s estate must pay off the reverse mortgage through the proceeds of the sale of the property or through a refinance into a new mortgage.

I hereby certify that I have received and read this disclosure. I understand and agree that the Lender has made no representations regarding my legal rights, but has strongly suggested that I seek legal advice before signing this or any other document associated with the reverse mortgage loan.

 

Recommended reading from this category:

By Cliff Auerswald – Add me to your circles 

 

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6 Responses to “How Will a Reverse Mortgage Impact my Kids and Family?”

  1. Erin says:

    My fathers house is not selling! It is a very slow market. The house is listed well bellow appraisal but since it is located in a very high Asian community nobody is interested in it because he passed away in it. We have gotten extensions and have tried everything to sell this property. We have been told it will foreclose on in 16 days regardless of all the equity. Please tell me why they are so quick to foreclose on these properties when they are getting a payment on them each month still. I know several people that are upside down in their homes and foreclosure are taking almost 2 years for them. Any advise???

  2. admin says:

    Hi Erin,

    I have to admit I am a little confused. The lender cannot just foreclose without due process and typically does not even begin the process until many months after the borrower has left the property. From that time, the foreclosure process still takes several months. Also, if there is still quite a bit of equity, unless the market is very depressed, then it’s hard to say why it would not get some sales offers when it’s listed well below appraised value. the lender typically does not want to take the property back because all they can do to sell it is the same thing you are doing.

    Usually, I would recommend heirs contact the lender and show them that they would be no better foreclosing than giving them additional time to complete a sale, but that would require that you show them what steps you have taken, what possible purchasers you have and what plans you have for future sale. If you feel that the lender has not been in compliance with local laws regarding foreclosures, you can always seek legal counsel to determine what alternatives you have to delay the foreclosure sale.

  3. JERRY DIMAS says:

    MY WIFE & MYSELF HAVE REVERSE MORTGAGE THRU A U.S. GOVT. LOAN CALLED HECM. DO MY HEIRS HAVE TO SELL THE HOME AT A REASONABLE TIME LENGTH? IF THE HOME IS NOT SOLD DOES THE LENDER TAKE OVER THE HOME? THE HOME BUYERS MARKET IS NOW AT AN ALL TIME LOW. WHO PAYS FOR THE SALE OF THE HOME IF THE HOME IS SOLD. DO MY HEIRS OR THE REAL ESTATE COMPANY WHO HANDLES THE SALE OF THE HOME PAY THE SALESPERSON WHO SELLS THE HOME? IF THE HOME IS NOT SOLD IN SAY ABOUT 12 MONTHS, DOES THE GOVT. TAKE OVER THE HOME? OUR HOME IS WELL MAINTAINED AND IN GOOD CONDITION AND THE YEARLY TAXES ARE PAID ANNUALLY. ARE MY HEIRS RESPONSIBLE FOR ANY LOANS ON THE REVERSE MORTGAGE? PLEASE RESPOND….THANK YOU VERY MUCH

  4. Mike Branson says:

    With the HUD-insured Home Equity Conversion Mortgage (HECM or “Heck-um”), your heirs will have the opportunity to make the choice that is right for them at the time. The lender will work with your heirs for a reasonable time period as long as a good faith effort is being made to sell the home. In other words, if your heirs determine that there is still equity in the property and want to sell the home, they can do so. All they need to do is notify the lender of their intent and they would contact a real estate sales person, list the property and sell the home. The cost of the sale would be deducted from the proceeds, just like the sale of any other home with any other type of financing. As long as they are actually listing the home and taking positive steps that the lender agrees are adequate, the lender will work with them to sell the property as the lender would have to take the same steps.

    However, if your heirs decide they do not want to become involved in the marketing or the sale of the property, they are not required to do so and the lender would take the property with either their cooperation (they could Deed the property to the lender) or the lender would be forced to foreclose on the loan. However, even if the lender did proceed by taking the property, there are never any credit or financial ramifications to the heirs. The lender can never go after any other assets of the borrower or any heir to repay the loan. For this reason, most heirs at least make themselves available during the initial phase of the transition to determine if there is any equity in the property. If so, they sell the home and keep the proceeds. In those instances where values have dropped or borrowers have lived many years and accrued more interest than the value has maintained, unless the heirs want to keep the property in the family (at which time they can work with the lender to keep the home for 95% of the current market value if that is less than the amount owed), they can simply let the lender dispose of the property without any negative impact. They are never forced to assume any liability and their decision not to pay off the loan will never affect their credit or assets (or any other assets you may have at that time either).

  5. Mary says:

    Our son is on the title with us on our home. IF we get a reverse mortgage, can he just continue to live here, make the payments and go on with life?

  6. Mike Branson says:

    Hi Mary,

    Your son could only continue on title if he is also 62 years old. If he is not, then he is not eligible for the loan and many secondary sources (those ultimate companies who buy all the reverse mortgages that lenders originate) have already begun to stop allowing lenders to take someone who has previously been on title off just to qualify for a reverse mortgage. If you took him off title to get the loan (in the case that he was not 62) and you and your husband passed, the loan would be called due and payable at that time. If it was not a good time in his life to be able to refinance the property, he would be forced to sell at that time and may not be able to buy again.

    Some spouses who did sign off of title to enable a reverse mortgage or a larger reverse mortgage are now initiating lawsuits stating that they did not know the consequences of their decisions at the time. We have always advised against this action unless the borrowers had a very specific plan in place so that the younger spouse did not have to move or had a place to move to when something happened to the older spouse. Now this action is being prohibited in most instances. The same is true for another family member (such as your son) who has lived in the property and been on title.

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