mortgage_house

Seems that one of the most popular questions we get is what happens with my reverse mortgage and my home after death. After all, the reverse mortgage is intended to be the last loan that borrowers will ever need, so this is a question many Mature Americans and their heirs have on their minds. If they do get a reverse mortgage and it does enable them to live in their homes without paying a mortgage payment for the rest of their lives, what happens when they pass?

Borrowers may or may not know that the benefit amount is based on the age of the youngest borrower. Those who have done their research and know this fact want to know what will happen if the younger borrower dies or has to permanently leave the home first. And all borrowers with heirs are always rightly concerned about what happens to their homes and the mortgage upon their passing.

Firstly, to clarify one point, there are never any monthly payments of principal or interest due on a reverse mortgage. The loan accrues interest and other charges that are not due and payable until the last borrower permanently leaves the home (12 months or more). However, the borrowers are still responsible for payment of taxes and insurance and for the upkeep on their homes.

Borrowers who get into this loan thinking that they will no longer have any expenses on that home are incorrect and if they cannot afford the taxes, insurance, (Homeowner’s Association Dues if they live in a condominium) and other expenses to maintain that property are in for a rude awakening and should be looking at other options. So to be sure that you can live in the property for the rest of your life with your reverse mortgage, your income or the income that you will receive from that reverse mortgage must be at least high enough to pay these expenses while allowing the borrower to live in comfort.

Now that we have determined that a reverse mortgage is right for you, what does happen to the mortgage and the property after death? This is one of the areas in where it is similar to a forward or traditional mortgage in some ways, but slightly different in others. Reverse mortgage borrowers own their homes, not the bank. Many believe that the home reverts to the bank upon the death of the last borrower, but that is not the case.

Just as with a forward mortgage, reverse mortgage borrowers can sell their properties and move if they change their minds later and decide that this won’t be the last residence of their life and they can leave their homes to their heirs. Just as with a forward mortgage, the reverse mortgage must be paid off but all remaining equity stays with the borrowers or the borrowers’ heirs. The bank does not make the decision as to when you stay or leave you home and there is no prepayment penalty.

Borrowers who do stay in their homes for many years do accrue interest and charges on a reverse mortgage and the amount of remaining equity will depend on how much money the borrowers have taken from their mortgage, the interest that accrues and the values of properties. For example, borrowers who obtain a reverse mortgage under the payment option or the line of credit option and then do not draw large sums of money immediately or only draw a little now and then, will not accrue interest as fast as those who take a lump sum draw on the entire amount. And then current real estate values and what values have done since the mortgage was first obtained will dictate whether or not there has been any appreciation in property values.

I have seen some articles wrongly blaming a reverse mortgage for depleting equity in specific properties and upon further research, the borrowers obtained more cash on their loan than the property was worth when they tried to later sell that property due to the massive drops in real estate values in general. After the death of a spouse or borrower, if the real estate market is extremely depressed, if that borrower received more cash on their reverse mortgage loan than the property is currently worth then there will be no equity in the home…but that would be true of any mortgage product including traditional or forward mortgages.

The reverse mortgage does not dictate the real estate market and with the current real estate conditions, thousands and thousands of borrowers find that they now owe more on their current mortgages, both forward and reverse, than their properties are worth. This is where the insurance reverse mortgage borrowers receive really comes in handy but I will talk about that later.

Borrowers determine the disposition of the property upon their death with their wills just as any other borrowers do, whether they have a forward mortgage or no mortgage. The property is passed to the borrowers’ heirs and then the borrowers’ heirs must do the same thing they would have to do with a forward mortgage – determine if they want to keep the home or sell the home. If they want to keep the home, then they must pay off the balance with a new loan (refinance) or with other money available to them. If they choose to sell the home, then the heirs need to contact the servicer of the reverse mortgage as soon as possible and inform them of their decision and maintain communication with that servicer.

Some feel that the heirs have an automatic 12 months to decide what to do with the property and that is not the case. Upon the death of the last remaining borrower, the heirs have periods typically of three months at a time up to 12 months with the lender’s approval to sell the property. During this time, the lender or the lender’s servicer will want to see the efforts of the family to sell and this is where the communication is important. The lender has no desire to have to foreclose and sell a property on their own, but if the family is not making any attempts to sell the property and repay the loan, the lender must eventually step in to facilitate the repayment of the loan.

Upon the sale of the property, all remaining equity belongs to the heirs, just as with a forward mortgage. A reverse mortgage is a non-recourse loan. Which means that, if with the combination of the accrued interest and current market conditions the property will not sell for enough to repay all amounts owed on the loan, then the borrowers’ heirs are not liable for any additional amounts owed.

As previously mentioned, borrowers pay for mortgage insurance to the Federal Housing Administration (FHA), a division of The Department of Housing and Urban Development (HUD) which guarantees that the borrower and the borrowers’ heirs will never owe more than the property is worth on a bona fide sale to a third party. The program does require a bona fide sale to a non-related third party, heirs cannot “sell” the home to other family members for less than is owed on the reverse mortgage expecting the FHA insurance to cover any shortfall to the lender on the amount owed (there are no restrictions on sales to family members or otherwise, just in the case of a balance of the reverse mortgage being higher than the value of the property and heirs wanting the lender to forgive the over value portion of the loan and still keep the property within the family).

This should dispel a few myths about what happens upon the death of reverse mortgage borrowers…

The bank does not own the borrowers’ home, the borrowers and their heirs (upon their passing) do. Upon the death of the last remaining reverse mortgage borrower, the family has the right to keep the property or sell it and if the home is not worth enough to pay off the entire mortgage, the heirs are not liable for any shortfall on a bona fide sale to a third party due to the non-recourse nature of the loan.

Heirs need to maintain communication as they do not have a set 12 months to dispose of the property after the death of the last remaining borrower…even though the lenders are only too willing to work with families who have a viable marketing plan for the property.

Reverse mortgages become due and payable upon the death of the last remaining borrower or when the last borrower permanently leaves the home. But, borrowers must also pay their taxes and insurance and maintain the property to stay within the reverse mortgage contract – it is the monthly mortgage payments of principal and/or interest that reverse mortgage borrowers will no longer have to pay as long as they live in their homes.

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41 Comment(s)

Zoe Hicks12/11/09 7:41pm What if the lender buys the property subject to the reverse mortgage (mortgagor has died) in a foreclosure sale and resells for less than the mortgage balance. Any tax consequences to the estate of the reverse mortgagor?
Susan Dess1/15/10 1:51am What happens if the bank is forced to sell the house after the borrower dies because the family has not communicated with the bank or attempted to sell the property? After the mortgage is paid, do the hiers receive any remaining equity?
Michael Branson 1/15/10 6:56pm As for the first question. You really need to talk to an accountant for tax questions. Unfortunately we cannot give accounting or legal advice.As to the second question. Every reverse mortgage borrower is required to put an “alternate contact” on their application that the servicer uses in the event that they can no longer contact the borrowers, as would be the case if the borrower(s) passed. Most often, the alternate contact is the borrower’s family member or an heir and therefore they have been contacted long before any action has been taken by the bank to foreclose on a reverse mortgage. The heirs would then be in contact with the lender and can begin a plan to determine how they want to dispose of the mortgage, by refinancing the lien, paying it off with other funds, or by selling the property. If for some reason, the alternate contact has changed their contact information and the servicer cannot locate any heirs, then the lender would be forced to foreclose on the property.The bank starts the bidding on any foreclosure sale at the amount owed on their loan plus all costs in the foreclosure proceeding. In other words, the first bid is the bank’s and it is the amount they are owed. The only way there would be any excess equity that would go to the borrower’s estate would be if someone else bid more than the bank did and then anything bid above and beyond the amounts owed would go to the borrower’s estate.For this amount to be a significant sum (the first bid above the bank is going to be a very small increase and the bank will not bid against the new bidder, they will take what is owed to them and be out of it), you would need to have multiple bidders raising the sales price which, although can happen, is not a common occurrence at foreclosure auctions. So the short answer is that yes, if the property sells at auction for more than is owed to the bank for the loan plus costs, the remaining amount would go to the heirs but it seldom happens that properties sell much above the banks opening bid. Luckily, with the alternate contact, most heirs have spoken with the lender’s servicer long before the property ever goes into foreclosure and the two have worked out a plan to retire the debt.

Thanks for the great question! – Michael Branson CEO All Reverse Mortgage

Kim Williamson2/15/10 6:53am My grandmother died in September of 08. We were not close and I knew nothing of her affairs. I have just been served a summons that the house is being forclosed on, with paperwork showing she had signed for a reverse mortgage in 05. Are all reverse mortgages no-recourse in Florida? I do not want her house, Do I need an attorney or can I just write to the court and the mortgage company’s attorney that I want nothing to do with this property? Will I end up owing money? The house is vacant. My grandmother has other grandchildren but I do not know them. (There names were listed on the summons.) Thank you for your help.
Michael Branson 2/16/10 11:20pm Kim,If your grandmother took out her loan in 2005, there is a possibility that she has a loan other than the HUD HECM mortgage as there were other loans available during that timeframe known as proprietary reverse mortgage product. I would imagine that any loan she received in 2005, proprietary or otherwise, was a non-recourse loan.I cannot give you legal advice, but I can tell you that you should definitely contact the lender or the servicer who is handling the loan. Let them know of your interest or lack thereof. As an heir, they are required to inform you of the proceeding. You are under no obligation to step in and take over the property nor would you end up owing any money. You did not sign the Note promising to pay any obligation so there is no reason not to contact them. You will not owe anything personally.
Mary Glover2/28/10 7:35pm What happen if your parent passes and there is no will and you want to keep the property , but you have bad credit.
Mary Glover2/28/10 7:40pm What happen if your parent passes and there is no will and you want to keep the property , but you have bad credit.
elizabeth autrey3/1/10 3:27pm my parents are considering a reverse mortgage on their home. there is no balance owed on the home. however, once the appraisal is done will a title research be done as well. i was told that my name (heir) is on the property but I am not sure. if my name is on the property, will I have to sign the papers for the reverse mortage? will both parents need to be on the reverse mortgageg loan in order for them to remain in the home until the end? let’s say they get an appraised value of 60,000.00 how many months will be this be divided into to make payment back to borrowers?
amy carpenter3/18/10 4:50pm when a borrower passes away and has left everything to a grandchild. The grandchild plans on getting a loan to buy the house to keep it in the family. Is the house hers from the moment the borrower passes away? The property automatically hers so she can do whatever she wants? Does’nt she have to put the property in her name before she is the real property owner?
Michael Branson3/25/10 6:29pm Hi Amy, There are two issues here. One is what happens to the heirs of a borrower who had a reverse mortgage and the other is with regard to property ownership laws. Let’s deal with the first one first. The heirs of a borrower who had a reverse mortgage can contact the servicer, let them know what your plans are and then make arrangements to carry out those plans. They will work with you toward the disposition of the property if you are selling it or give you time to pay off the existing loan or to obtain new financing if you are obtaining a new loan. The key, as we have always advised, is good communication with the lender or their servicer. The second part of your question is much more difficult for me to answer and one that I really can’t answer for a number of reasons. Different states have different laws regarding property ownership. I am also not equipped nor am I licensed to give legal opinions or advice regarding these various laws. There could also be issues with the way the property passes title (i.e. was it done in a will or by trust), there could be probate issues or any number of issues with which we are not familiar and on which we cannot give a definitive answer. For an issue such as title rights and when and how the property can change title after the passing of the borrower(s), I would recommend that you contact a good real estate attorney practicing in the state where the property is located.
Damita Wanzer4/19/10 6:51pm What if, in a reverse mortgage, the Bank asks for a substantially higher amount on the house that what was borrowed or due. The person died soon after getting the loan. After the bank is paid the original amount plus interest, etc. Does the difference belong to the heirs?
Michael Branson4/20/10 8:27pm Damita,I’m not sure I understand the question entirely but let me answer with what I think is being asked and if this doesn’t answer your question, please feel free to give us a call. I think you’re telling me that the house is worth substantially more than the amount owed at the time of the borrower’s passing. If this is the case, then the heirs should step in and sell the property themselves and not have the bank foreclose and sell it.The borrower owns their home, not the bank. The bank merely has a lien against the property to ensure repayment just like any loan. When the borrower passes, then the borrower’s interest in the home passes in accordance with the borrower’s wishes. If there is equity in the home, then the heirs can sell the home and they would keep all the remaining equity…not the bank.The only time the bank would sell the property would be if the borrowers died without heirs and the bank had to dispose of the property to pay off the loan or if the heirs chose not to dispose of the property and again, the bank had to foreclose and sell the property to pay off the loan. if there is remaining equity then the heirs would normally step in and sell the home themselves, pay off the loan and keep the difference. The house and the proceeds belong to the borrower or the borrower’s heirs after the repayment of the loan plus interest and costs.
Mary J5/18/10 6:37am My mother-in-law took out a reverse mortgage about 9 years ago. If I’m understanding everything that I’ve read, the heirs are not responsible for any loans on the home, correct? The house doesn’t have much value to it, and it hasn’t been kept up at all. We would bulldoze it, if it were ours. She doesn’t have life insurance, or any money set aside as she has had a gambling addiction for years. Is there anyway to make it legal so that we’re not responsible for any of her bills, including funeral expenses? I know it sounds cold, but she has a working son living with her in is late 50’s that has the same addiction and hasn’t contributed anything to her household, if anything he has enable their gambling addiction. She said she hand wrote a will several years ago (she is 84). I just want to make sure that we’re not stuck with any of her bills or costs of her funeral as she never did anything for us. Again, I know that sounds cold, but you have to know the situation.
caryl5/28/10 8:00pm everything i’ve read about “what happens after death” takes the position that the home is worth more than the amount owed on the reverse mortgage and the heirs pocket the profits. but in today’s housing market, that’s hardly the case. my mother got a reverse mortgage in 2003, taking the money in chunks here and there, and she recently passed away. the reverse mortgage now totals over $42k (more than half of it in interest and servicing fees), but the condo is worth only $21k. my sister and i would like to keep the condo, but what lender would give us a refi loan for double the amount of the property???!!! and we can’t see buying the condo for so much more than it’s worth, so we’re forced to sell. the mortgage company won’t suffer since HUD will make up the difference, so once again the little guy gets the short end. any advice?
Leo 5/31/10 3:23am A little over a year ago, my father and step mother were talked into a reverse mortgage, dad was 68 and mom 61. However, they took mom’s name off the house in order to do this reverse mortgage. There was a discussion that once mom turned 62 she could be added back onto the title of the home, and be added to the reverse mortgage. Needless to say, dad was in poor health at the time of this transaction, under a lot of stress to take care of his affairs before he passed away ( he had been given 6 months to survive). Dad passed away with in weeks, and literally within days of any payments made by the reverse mortgage company to things like property taxes and stuff. When mom contacted the reverse mortgage company they told her to hang on till she was 62 and then they would put it in her name, in the mean time she had to make a valid attempt to sell the home, and pay them off. She of course did not do this, and when she turned 62 they said they were going to have to foreclose on the home. It is my understanding that they want mom to go to the county office now, and add her name on to the title of the home as his heir. If she does that, is she helping them to foreclose quicker, or is she helping to get the reverse mortgage in her name. Her name was always on the home, and to be told to take it off for the reverse mortgage to go through in the first place, seems a bit shady to me. Were they swindled, knowing my father was going to pass away? Both were under mental duress during this time, and if I must admit it, my mother has been clinically diagnosed as what we call crazy….due to depression, could she be considered incapable of signing her home away to a reverse mortgage company? I just need to know what her options are, before she loses her home.
Michael Branson6/1/10 8:05pm Caryl-I have to tell you straight off that I do not agree with your analysis. If the condo is worth only $21k after the slide in the property values and your mother already received the bulk of those funds (the $21k current worth) in her reverse mortgage and was able to live in her home without having to make a payment since 2003, I hardly feel as though your mother or you got “the short end” on that deal. Regardless of how much over the $21k value the reverse mortgage is, you can never be made to pay more than the property is worth and based on that, your mother received almost 100% of the value of her home in cash.The reverse mortgage was designed to give your mother the funds she needed to remain in her home and not have to make a payment for the rest of her life which it did. Your mom was able to access the equity without having to make a mortgage payment for approximately 7 years. The massive drop in the real estate market hit everyone and whether your mother had taken out a reverse mortgage or a home equity line of credit (HELOC), her value still would have dropped and with a HELOC, she still would have been making monthly payments all those years to the bank and her condo would not be worth any more than it is now. Chances are those monthly payments would have gone to interest only (assuming she needed the cash to begin with and that’s why she took the reverse mortgage), keeping her balance at or above the current value of the condo and giving her less money to live on after the monthly payments than she was able to get with the reverse mortgage. In this sense, your mother absolutely did better with the reverse mortgage as she was able to live more comfortably for the last 7 years and you can’t owe more than the property is worth so you’re no worse off than you would be if your mother had borrowed in another manner. So this is why I simply don’t agree with the premise that “the little guy got the short end”.If you really want the condo, you can always let the lender foreclose on the current mortgage rather than trying to sell it yourself. Then you could purchase the property when it is placed on the market at the market price by the lender. Once the property is owned by the lender/HUD, you would run the risk of being out-bid by another purchaser, but depending on the real estate market and if there are other units available for sale in the area, then there might not even be danger of a bidding war on your mother’s condo and this may not be an issue. At any rate, you certainly can purchase the condo at the current market and if you are not in a position to purchase the property, you would have been in the same spot with a HELOC that would have been due and payable when your mom passed as they are not assumable loans either.
Michael Branson6/1/10 8:08pm Leo-I’m not an attorney so I don’t know what recourse your mom has or whose idea it was to take her off the title in the first place. This is exactly why we advise borrowers never to take one spouse off title to get a reverse mortgage unless they are completely aware of the ramifications and have a viable back up plan in the advent that the older spouse passes prior to the younger spouse. The reason for this is exactly what your mom is faced with right now, as a younger spouse, she will not be able to qualify for as much on a reverse mortgage as he did.I do not know who first originated your parents loan or with which lender you are dealing now, but all of the lenders with whom I have worked have been honorable people and I do not believe a lender would request that your mother do anything with the ulterior motive of foreclosing on the property faster. Nor do I think it would speed things up as a default already exists on the current mortgage.I would be more than happy to run some back up numbers on the program for her if she desires to see if she can obtain enough funds on the newer, no cost programs to pay off the existing lien and refinance the property in her name (that could be their motivation, you cannot do a refinance until you own the property). I think that would be your best due diligence in the short run. You could even call a company for your mother with her birth date, property value and amount owing on the existing reverse and they can tell you if the proceeds she can obtain will be sufficient to pay off the existing balance. If so, then getting the title changed and then starting a new mortgage in her name would be a good idea and you could continue with the current company if you felt better about that. The most important thing here is taking care of mom.
lynn6/2/10 2:02am What if you have a reverse mortgage and need to move into a senior facility can’t sell so can you notify bank you are moving cannot pay let them foreclose
lynn6/2/10 2:37am Not sure I worded my question properly…If a person cannot sell a home on a reverse mortgage and needs to move into a senior home or apartment can they give the deed to lender and let them foreclose without penalties? Heirs donot want property and value now equals what is owed
Caryl6/2/10 4:38pm Thank you so much for your cogent and honest answer. Now that I view the situation from your perspective, I can see just how much my mother did benefit from taking out the reverse mortgage, and in light of your convincing explanation please forgive me for focusing unfairly on the “short end.”I am going to give careful consideration to the idea of the lender foreclosing on the property and then I would buy it back. That is not something I thought was possible. The real estate market in southern Florida is in a pretty depressed state, so I don’t think there would be much of a bidding war.Once again, thank you for taking the time to explain the situation to me — I do appreciate it. Caryl
Kristen7/11/10 8:11am My dad took out a reverse mortgage in 2004 and died in 2008. The estate, of which I am the executrix, has tried to stay in contact with the reverse mortgage company but they stopped responding about 10 months ago. They have put locks on the doors, ignored our real estate agents offers for the house and have even done damage to the building by sending a crew in to winterize the house, resulting in broken pipes, theft, etc…They have not sent me one notification about any of these actions. No foreclosure notices…nothing. Our question is—who is liable for damage to the house? We live in Massachusetts. Clearly their negligence has resulted in a protracted situation, even though we offered deed in lieu and was rebuffed in our last conversation 10 months ago, at which time they said the property was in the foreclosure department. We are at our wits end. The lawyers cannot get in touch with them either. We want to sue them for lost value to the house. Can you advise?
Michael Branson7/19/10 5:26pm Kristen,I am sorry, but I really cannot give you legal advice regarding this situation. This is now a legal issue and you should seek the counsel of a competent real estate attorney.There are a few questions you may want to ask yourself though. A reverse mortgage is a non-recourse debt. If you have already offered a Deed in Lieu of Foreclosure, then I have to surmise that you are not interested in paying off the debt and keeping the home or have tried to sell the home with little to no luck, and that there may be no remaining equity at this time. One thing you may want to discuss with your attorney is letting the lender complete their foreclosure at this time. There is no reason to worry about the effects of a foreclosure, credit is no longer a concern for your father and his foreclosure has no effect on you whatsoever. If the lender is not working with you, there is nothing to be gained to try to continue to work with them, you may want to ask your attorney why you should even try to continue rather than letting the lender complete the foreclosure.If you are still the owner, that is, the property was willed to you and the foreclosure has not gone through, then the lender should not have entered the home in the first place unless Massachusetts laws give them the right to enter into the property and secure it if they believe it to be abandoned. This is another question for your competent legal counsel. If the lender acted in accordance with the law to secure the property, then you would want to determine the proper laws to retrieve any personal belongings still in the property which you wished to collect. If the lender acted outside the law (i.e. it is determined that the lender did not give proper notice and therefore had no right to enter the property), then you may have grounds to have any locks on the doors, etc removed until such time as they do obtain the property through legal means.I am not a licensed attorney and especially not familiar with the laws in your state but there are a few statements you made which concern me. If the lender had not completed the foreclosure, typically they would not have secured the property and would not yet be involved with the real estate agents unless they were being asked to take a short payoff of the outstanding mortgage balance on a sale. If this is the case, then again, you need to ask your attorney and yourself if there is even any benefit for you to be involved in this transaction any further. A lender is usually only too happy to accept a Deed in Lieu of Foreclosure once it is certain that the property is sure to go to foreclosure. Doing so saves them time and considerable amounts of money in processing/legal fees if they can get the property immediately without having to go through the entire foreclosure process. I do not know for the life of me why the lender would deny you the opportunity to give them a Deed in Lieu of Foreclosure after more than 10 months and keep it in the foreclosure department which only takes longer and costs more money for the lender. I would suggest you contact someone higher up the ladder if you still want to make that offer as this would only cut time and costs for them.

With regard to the damage to the home, if the home is already going to be sold for less than the outstanding balance of the reverse mortgage, then the lender will never recoup the total amount owed to it at foreclosure sale let alone the damages. It cannot request payment of those damages from you (whether they actually committed the damage or not). I don’t know what lost value to the house you could prove you suffered if you were going to give the home back to the lender in a Deed in Lieu of Foreclosure or lose it to foreclosure at this time anyway. It sounds like if the lender did do anything to lessen the value further, then they may have only hurt themselves. Here again, only an attorney could advise if this situation would warrant any judgment in your favor for damages on a home under these circumstances.

I wish I could be of more assistance but as I stated, I am not a practicing real estate attorney in Massachusetts and I cannot give legal advice. I can tell you that with a reverse mortgage you have a non-recourse loan meaning the lender cannot go back after anything but the security (your father’s house) to recoup their money. I can tell you that in 2004 real estate was extremely high and that in 2008 it had fallen in almost every area of the country. If your father’s home is anything like many of the properties we deal with, he may have gotten his entire current value out with the reverse mortgage and if that is the case, he (or you) actually did better on the transaction since he already got the majority of the property’s current value out of the home. And lastly, I can tell you that if the loan balance is higher than the current value of the home, it is comforting to know that you don’t HAVE to do anything. As I stated, there is no other recourse for the lender than the home and if your father already got the current value out with the reverse mortgage, if it were me, I would let the lender take it after I got all my father’s personal items out of the home. All things to discuss with your family and your attorney.

Dave8/5/10 8:51am My mom took out a reverse mortgage about 3 years ago. I was there when the salesman was discussing a reverse mortage and at signing. She opted for a line of credit. Mom passed this past June and there is still a sum of money left in her line of credit. The finance company says, per FHA guidelines, that only she can withdraw money from the line of credit and therefore the money left is not acessible to mom’s heirs or estate. Is this true? Doesn’t make sense. I know the salesman never mentioned this because I would have told mom to take a lump sum since she could die after signing the papers and the finance company would get a free house! At the time mom was thinking of filing bankruptcy and had retained an attorney. She sent the papers to him even though he wasn’t familar with reverse mortgages. He found no red flags, like what happens to money left in a line of credit upon death. I’ve surfed a lot looking for the truth on this matter and no where can I find anything on the remaining balance of a line of credit upon death. Not even on HUD’s site!!! Thank-You
Wayne Boeckelman8/9/10 2:41am My personal experience is that reverse mortgages are a nightmare. My mother had a reverse mortgage, had used all the money alloted to her, was on a deferred property tax plan, and still really should not have been in the house because she could not afford to live there. We finally had to have her put in a nursing home because she could not get in and out of bed without assistance. We knew that she was never coming home and we attempted to sell the house. We hired a landscaper to clean up the outside, had the carpeting shampooed, and spent a lot of time attempting to make the house as presentable as possible. The real estate market in Chicago in the fall of 2008 was, like virtually everywhere else, down. The only offer was an amount that was a short sale, which of course the reverse mortgage company turned down because the loan is guaranteed by the government. At that time we communicated to the reverse mortgage company that the house was all theirs. They came out, changed the locks and winterized the plumbing. My mother passed away in January of 2009 and I thought we were all done with the house. She had no other assets and I had to borrow $6,000 to pay for the funeral, as she did not even have any insurance. This past June the reverse mortgage company served papers on me and my oldest child (age 23) to sue me for the amount of the reverse mortgage, over $300,000. I have had to hire a lawyer and he says although we should get out of the lawsuit, he’s worried that this will be listed as a foreclosure on both mine and my daughter’s credit rating. I do not have the words to describe how much I hate reverse mortgages.
Michael Branson8/18/10 8:03pm Wayne-I am truly sorry for your troubles, but I’m not really sure how to respond to this. It sounds like your mom may have had a private or “proprietary” reverse mortgage that is not the HUD Home Equity Conversion Mortgage (HECM or “Heck-um”). I can’t say for sure, but the HECM would not allow for that.You did say that it was “government guaranteed” and the HUD HECM is a government, FHA-insured loan. But the HECM is a “non-recourse mortgage”. If the loan was other than a HUD HECM, I really can’t comment on a proprietary or private mortgage that might contain unfamiliar terms. But a HUD non-recourse mortgage means that the lender can only go back to the property as their security. The loan documents themselves do not allow the lender to go back after the borrower or the borrower’s heirs for anything above and beyond what they can get from the property for repayment on the debt…the property is their only security. You may want to check with your mothers documents to see just what type of loan she had. If you can’t find copies of her documents, you could probably find out for sure just with the recorded documents available at the county recorder.I am not an attorney and cannot begin to give legal advice but you might want to ask your attorney about the possible violations if the lender filed any derogatory credit information against your or your daughter’s credit ratings for a foreclosure on your mother’s home – a loan for which neither of you ever signed a promise to pay. Any filed foreclosure would contain the borrowers name and the property information, not yours, and therefore should never show up on your credit (after all, neither of you ever signed an agreement with that lender promising to repay a debt). Again, not legal advice, just something to discuss with your attorney.If your mother used all the money for which she was allotted, then the reverse mortgage may have allowed her to borrower ultimately more than the home was worth after the falling values. With regard to her still not being able to afford the home, this is exactly why we encourage families to become involved from the very beginning. The reverse mortgage does require that the borrower still be able to pay the taxes and insurance and maintain the home and if that is still beyond the borrower’s means, then it is really not the right option for that borrower and it’s better to discover that fact before the borrower gets the mortgage.
Michael Branson8/18/10 8:05pm Dave -they were correct in that only your mother could access the line of credit. She is the borrower on the loan so only she is able to take out advances on the line. However, any money she did not use would still be equity in the home and that would still belong to her heirs, not the bank. So when you say that the finance company gets a free house, that is where you miss the mark a bit.Any money that your mom did not take out on the line, she also did not accrue interest on and was not considered borrowed funds. Therefore, her heirs can now step in and sell the property or pay off the loan and keep the house and all you have to pay off is the outstanding balance of the amount she actually did use plus the interest that accrued on that portion of the loan. The finance company does not get the house, if you are your mother’s heir, you can sell the home and the additional equity that you will realize due to the fact that she did not use those funds will still be yours. It’s just like a regular Home Equity Line of Credit in that regard. You can’t take any more money out of the line after the borrower passes, but you also don’t have to pay back any of the amount that was not used when you sell the home.
Adrienne with Responce 10/15/10 5:00pm My Mother and Father obtained a reverse mortgage a couple years ago. Both names are on the property and loan papers that come each month. Mom died this year. My Father has someone else living there with him who is not on the loan. They have plans to be married. Does any of this effect the property? It is my understanding that Dad can get married and live at the property but if he dies before my step mother, she would have to vacate the property at that time. Is that a fact? What about other people living at the property? Can my brother move back into the home without any problem to my Father? I have read everything I could find on reverse mortgages but cannot find anything about “other people” living on the property Please explain..Adrienne – If both mom and dad were on the original mortgage (as they were in this case) then the loan will continue to be valid so long as either one of them continues to live in the property, in this case, that would be your father. The fact that your father remarries or has children living at home will not affect effect his reverse mortgage. Other people can live with your father.You are correct though, that when your father passes, the loan will become due and payable but whether or not his new wife has to vacate the property is entirely up to ownership at the time and ability to repay the loan. Your father always retains title to the property under a reverse mortgage and therefore, retains the right to pass title to his chosen heir(s). The person(s) who inherit the property would then be faced with the decision as to how they want to pay the loan off, whether that means refinancing the loan to keep the property, paying it off with other funds at their disposal or selling the property. If he/she/they had the means to pay the loan off with funds at their disposal or via refinance, then they could continue to live in the property.
Susan with Responce10/15/10 5:03pm I have had a bad loss. My Mom has passed away she has a reverse mortage and it is owed more then the home is worth. I has a cousin living there who will not move out. She gave mom maybe 20.00 a week. She cannot afford the electric bill and needs to move to a welfare home.What am I responsible for? There is two others in our family.What do we do? I do not have the money to buy the home off and the mortgage is double the amount.There is not other estate either. Please help meSusan – If your mom had the FHA-insured HECM reverse mortgage, your mother paid for Mortgage Insurance which protects her estate and you both against just this type of issue. The loan is a non-recourse loan, which means the lender can only go back to the home to satisfy the debt, they cannot seek anything from you or other heirs. If the mortgage is double the current value of the home, then your mom was lucky enough to have already gotten more money out of the home than its value. You can remove all of the personal belongings, contact the lender and inform them that you do not wish to market the home due to the current loan balance. They will take the property back and file a claim with HUD for any losses after the property is sold but in the mean time, you and your family are off the hook and it will not have any effect on you.
Sandy with Responce10/15/10 5:34pm Thank you so much for the great information. All my doubts and questions were satisfied. I am the heir to my mother’s home. She has been placed in a long time care facility due too Alzheimer’s. She has at the most several months before this disease wins. I am residing in the home and have made major repairs and upgrades to her home. I have been told that now that I am 62 that when she passes away I can have the reverse mort. put in my name if I so desire. Would this be considered a refinance? I am her P.O.A. and sole beneficiary of her estate. I am also prepared to sell the home if this is what I must do to repay the outstanding balance owed . Please respond. Thanking you in advance.Sandy,As the heir to the property, you are refinancing the existing financing on the home, but it is not what they call a “HECM to HECM” refinance since the original loan was not in your name. May sound a little strange, but you have two choices in verbiage with regard to either a purchase or a refinance transaction and since you acquired the home by inheritance and already have ownership, you are not buying it. Therefore it is a refinance transaction to put the financing into your name. HUD has special considerations when a reverse mortgage borrower is refinancing their own existing mortgage though and since you were not the borrower on the original loan, you would not be subject to , nor the beneficiary of some of those considerations.You can qualify for a reverse mortgage however, depending on the value and the amount of the loan your mother used, you may not be able to qualify for a large enough balance to pay off her entire loan. Since you are younger (and older borrowers qualify for more money under the program) your benefit amount may not be adequate to pay off her full balance if the value has not increased and she has used all her funds and accrued interest. You can however choose to pay the shortfall, if any, and continue to reside in the home payment free if that is what you choose to do and it is a viable option for you.
Steve with Responce10/15/10 5:36pm My mother recently died and she had a reverse mortgage. My sister and I have no idea how to handle this and our real estate agent seems confused as well. Will we need to start making payments on the house now that she has died? – SteveSteve,No payments must be made but the loan entire loan balance is now due and payable. You need to contact the lender and find out what the current balance is on her loan. If she had the FHA-insured HECM reverse mortgage, then she also had a non-recourse loan which means that if the loan balance is higher than the current worth of the property, you will not be responsible for any shortfall on the sale. The first step though is to contact the lender since you have already spoken with a real estate agent and know the approximate value.
Laura with Responce10/15/10 5:38pm My grandmother passed away and we lived in the house with her. We cannot afford to pay off the loan so we are going to lose the house. Can we remain in the house during the foreclosure process or do we need to leave by the day that the bank lists as the date to begin the foreclosure? Also, does this foreclosure reflect on our credit if we are in the house? – LauraLet’s start with the easy one. The foreclosure can only be reported on the credit of the individual who signed the promise to repay the debt and then did not do so in the manner in which they promised to pay. Since you never signed a promise to repay (Note and Deed or Mortgage) the lender cannot report delinquent credit against you, whether you lived in a home with your grandmother or not. If that were the case, parents who did not make their car payments would jeopardize their children’s credit who rode in the car. You must sign a legal agreement and then fail to meet the terms of the agreement as promised before a lender can report you to a credit bureau.As for the second part, I cannot give you legal advice and foreclosure laws are different in different parts of the country. Most procedures take several months after initiated and borrowers can remain in the house during the process before the lender obtains title to the home. But I cannot assure you of this in your area, nor do I know if it would make any difference that you are not the legal owners of the property (unless the property title was actually given to you when your grandmother passed). You may want to check with a local attorney to verify your rights. Lenders typically cannot begin to list and market a home until they have retained the title to the property through the foreclosure process. At that time, you would no longer be able to stay in the home as the lender would be the legal owner.
John with Responce10/19/10 8:49pm Michael, Reading through the Q & As from the last few months may I compliment you on your answers and efforts to help. Hopefully you may be able to help me as well. My wife and I put in a bid for a HUD property last month and were successful (a condo in North Carolina). We are delighted and are waiting to close/pay cash. We have just been told by the estate agent that the attorney says that HUD should have foreclosed on the property and didn’t so there is a problem with the title. The background to the condo history is the elderly unmarried owner took out a reverse mortgage, stripped the condo and started renovations, then died. I was told he died intestate, but I do not know if there are any heirs/descendants. HUD (through agents HMBI) have said they don’t see a title problem and we can extend our contract to buy for a short time – but our Attorney says they need go through foreclosure properly which would mean the return of our earnest money and the property going back on the market next year and we would have to start again. Any thoughts? My thought is to get another attorney? Many Thanks, JohnHi John-I wish I could help you but this is one that really has nothing to do with the reverse mortgage and everything to do with the legal aspects of the property rights in North Carolina and that is not something on which I am an expert. For the lender or HUD (whoever held the mortgage at the time) to obtain the ownership and then sell the property, they would have to go through some sort of foreclosure action, the property does not automatically “revert” to them. Otherwise, they would be selling a property on which they had a valid lien, but no ownership rights at the time. Your attorney/title company can tell you if the foreclosure process had ever been initiated or completed based on the documents filed with the county recorder’s office and how long it takes to complete a foreclosure in North Carolina based on statutory time frames.As to whether or not your sales contract could be enforced as soon as their ownership rights had been perfected is another question. I do agree with you, if you were happy with the price you had originally negotiated (especially if you think they might try to raise it in a subsequent sale) and if you incurred any additional costs besides just the earnest money deposit which would be returned (any reports or services you paid for) I think I would get a second opinion to see if you could have the contract put on hold until the lender/HUD did own the property and then complete the transaction. But that is also assuming that you don’t mind waiting for the foreclosure process to be completed.
JANAKI1/4/11 4:48am My fatherinlaw took a reverse mortgage 2.5 years ago, to pay for medical help he needed. He lived with my sisterinlaw, whose salary was not enough to pay for this help, nor very much of their day-to-day expenses. My FIL got property tax breaks due to being a senior, and a veteran.My SIL was POA. My FIL just died last week, and we found out that he had been taking a very large monthly payment, so equity has been very reduced. My SIL is very very scared, as she has almost no savings, (having been under the mistaken impression that being his POA allowed her to continue drawing reverse mortgage payments. FIL had no life insurance, so funeral expenses need to come out of estate. SIL had declared bankruptcy 2 years ago. When my motherinlaw died 3 years ago, SIL convinced my FIL to have us pay back a gift of $10k which he had given us a few years before – which we did. She then convinced him to cut my husband out of the will because she was living with him, so he owed her more than my husband. My husband did not object to this, in interest of family peace (not that I liked it). Papers were drawn up, but they never got around to signing them, so original will is in place, with both children splitting estate. When we saw how my sister was spending money, my husband recently reiterated to SIL that he wanted none of the estate, which she readily agreed to (at that time she still believed she would have access to the Reverse Mortgage payments). Then last week my father in law died. Today, she started looking at the reverse mortgage payments, and is freaking out. My question is-as he had previously renounced any involvement in the estate, and had not involvement in the reverse mortgage or funeral arrangements, all of which were handled by my SIL, is he still potentially liable for anything to do with the Reverse Mortgage because the will currently lists him as an heir to the estate? The financial decisions my FIL and SIL were not ones we would have made, and we told them that, but they were not interested. We have tried to be financially responsible and frugal, but we have modest means, and cannot take on a lot of debt for my SIL. Any ideas on our financial liability? Thank you
Michael Branson 1/5/11 7:41pm @ Janaki, The short answer to a long question is that you are not responsible for any of the reverse mortgage liability. The reverse mortgage is a non-recourse debt and the lender can only look to the property for repayment of the loan. If the property is worth more than the balance of the reverse mortgage, then the heirs can sell the home, pay off the reverse mortgage and keep any left-over funds. However, if the balance on the reverse mortgage is greater than the home is worth, you do not have to accept the responsibility to dispose of the property. Your husband should just remain in contact with the lender and work with them to help transfer title so that they can begin to market the property.If the lender is forced to foreclose, then the foreclosure action is against the original mortgagor (your deceased father-in-law) since he is the one who signed the loan documents and whose Deed of Trust (lien) the lender is foreclosing upon. Therefore, if your sister-in-law is not cooperative in the efforts to market the property, that will not affect your credit. As an heir to the estate, you could lose any rights/interest you have in the home, but that is all and your individual credit will not be affected.
Need To Know3/4/11 10:23pm This quetion was posted twice on 2/28/2010 by Mary Glover: “What happen if your parent passes and there is no will and you want to keep the property , but you have bad credit.” Nobody ever answered her question, and unfortunately, we are in the same position. What can be done?
Michael Branson3/9/11 12:04am You actually have a couple of different issues. The first is when a person or persons die “intestate” – meaning they have prepared no will and have not made their wishes known. We are not a law firm and therefore cannot give legal advice so I would suggest that you contact a probate attorney to determine the fastest and least cumbersome ways to obtain the property.The second issue is the reverse mortgage. The reverse mortgage is just like any other mortgage. If your parent(s) had a standard forward mortgage, it too would become due and payable upon your parent(s)’ death. The options you have are to refinance the loan into your names with other financing, pay the loan off with other funds available to you or to sell the home and retire the debt that way. I have seen lenders advertising that FHA has programs that do allow for credit scores as low as 500 (I do not know how bad you mean when you say “…but you have bad credit”). We do not do these loans so I do not know their requirements, but there seems to be some additional flexibility out there.I do not know how long it will take for the property to go through probate in your area, so you may have time to start checking into some of the available FHA programs for lower credit scores as well as make the determination as to whether or not you will ultimately need to market the property before you start bumping up against deadline dates. I wish you the best.
Michael Branson3/9/11 12:05am You actually have a couple of different issues. The first is when a person or persons die “intestate” – meaning they have prepared no will and have not made their wishes known. We are not a law firm and therefore cannot give legal advice so I would suggest that you contact a probate attorney to determine the fastest and least cumbersome ways to obtain the property.The second issue is the reverse mortgage. The reverse mortgage is just like any other mortgage. If your parent(s) had a standard forward mortgage, it too would become due and payable upon your parent(s)’ death. The options you have are to refinance the loan into your names with other financing, pay the loan off with other funds available to you or to sell the home and retire the debt that way. I have seen lenders advertising that FHA has programs that do allow for credit scores as low as 500 (I do not know how bad you mean when you say “…but you have bad credit”). We do not do these loans so I do not know their requirements, but there seems to be some additional flexibility out there.I do not know how long it will take for the property to go through probate in your area, so you may have time to start checking into some of the available FHA programs for lower credit scores as well as make the determination as to whether or not you will ultimately need to market the property before you start bumping up against deadline dates. I wish you the best.
ROSE K. WALSH3/9/11 12:14am I FOUND THIS ARTICLE TO BE EXTREMELY INFORMATIVE. MOST OF THE QUESTIONS I HAD WERE ANSWERED FOR ME IN A WAY THAT I WAS ABLE TO UNDERSTAND MORE SO THAN THE BANK WHICH HOLDS THE MORTGAGE, AND EVEN MY ATTORNEY.
M.Statleh3/21/11 3:04am Why do reverse mortgage articles always omit that if you are at nursing home for a certain amount of time, you will lose your home. Please elaborate on this great risk.
Michael Branson 3/21/11 7:48pm There is no intended omission and we have tried to always be clear about this aspect of reverse mortgages. You don’t “lose your home” if you go to a nursing home, but if you permanently move out of the property, then the reverse mortgage becomes due and payable. According to the loan documents, “permanently” occurs once the last remaining borrower has moved from the home for a period of more than 12 consecutive months. Once this event occurs, then the borrower or the borrower’s heirs have the option of paying the loan off and keeping the property or selling the home and retaining any remaining equity.If the home is worth less than the mortgage loan, then the heirs and the borrowers will never have to pay more than the property can be sold to a bona fide third party due to the non-recourse nature of the loan. In other words, no matter how much money the borrower(s) took out of the property, no matter how much the property values have dropped, the borrower(s) or the heirs can work with the lender to sell the home and not have to pay any shortfall as a result of the sale. All remaining equity if the home is worth more than the remaining loans still belongs to the borrower(s) and their heirs.The reverse mortgage was always intended to allow senior borrowers to remain in their homes for the rest of their lives. If other circumstances dictate that they leave, the reverse mortgage does not provide for a payment free loan for the borrower’s heirs beyond the time when the borrower will live in the home. No one can predict future property values and so no one knows if there will be a large amount of equity left when the borrower does leave the home or if the equity will be depleted due to falling property values and a rising principal balance. However, we have seen borrowers with little or no equity left after the huge decreases in values we’ve just gone though with traditional forward mortgages as well.
Rob with Response4/26/11 6:44pm After the “passing” of the last remaining borrower in the case of a condo, who is responsible for payment of: Association dues, Utilites, Unit owner Insuance …? If the unit does not sell, is is the mortgage/bank’s responsibility…? Or would it be assigned to the “estateor heirs” – RobThe property passes to the original owners heirs in accordance with the owners wishes. Any ancillary debts on the estate (dues, utilities, etc.) would be the responsibility of the new owners of the property. Now having said that, if the property did not sell, the creditors for debts incurred by the original owner for services other than the reverse mortgage would be most likely place liens on the property to protect their interest in the event of non-payment. We can tell you that the lender cannot seek repayment of the reverse mortgage from any other source than from the property itself due to the non-recourse nature of the loan. The only way to know for sure what rights you or other debtors would have in your state with regard to collection efforts against the estate, would be to seek competent legal counsel in your area. – Michael Branson

Reverse Mortgages: What Happens After Death? By Mike Branson – Add me to your circles