Regarding the rule that the homeowner has to reside in the home: how long could that homeowner be absent (e.g. on an extended vacation) before they would be considered not residing in the house. Would they be allowed to have someone else living in the house to care take?
Hi and thank you for your questions. I am going to start with the second question as it is the simpler question to answer without reservations. The reverse mortgage does not prohibit a borrower from having anyone else live in the property such as a family member of a live-in caregiver. The borrower(s) may certainly bring in help to assist them in their living needs whether that be family or a paid medical caregiver. If and when the borrower(s) leave(s) the home to permanently reside in a nursing care facility or pass, then the loan would become due and payable and it would be up to the heirs of the borrower to contact the servicer to make arrangements to sell the property, refinance the loan or pay off the loan with other funds.
The question about the extended vacation is the one that gets into the gray area. The Security Instrument for the Home Equity Conversion Mortgage (in California it would be a Deed of Trust), states specifically that if the Property ceases to be the principal residence of at least one of the original borrowers during a period of 12 consecutive months after closing due to mental or physical illness, then there are grounds for acceleration of the debt (it can be called Due and Payable).
In other words, if a borrower is forced to go to a hospital for more than 12 consecutive months and there is not still one original borrower remaining in the home (not a family member, but a borrower who is on the loan), then the loan shall become Due and Payable and must be paid in full at that time. The documents do not state specifically how long a borrower can be out of the home for an “extended absence” for things other than mental or physical illness, like a vacation. Most of the time it’s only a matter of contacting the servicer, notifying them that you will be on an extended vacation in case they try to contact you while you are gone and everything is fine. However, that would depend on the time of the absence.
The underlying guideline will be whether or not the borrower(s) is/are absent long enough to still consider the property the primary residence. If the borrowers want to take a 3 or 4 month vacation, no servicer I know would take issue with that time period. If the time frame was to be 2 years, I think it would be safe to say that the property was no longer their primary residence during that period and therefore under the HUD rules, they would have to call the loan Due and Payable.
Unfortunately, there is no set time period on the Deed of Trust for which the borrowers can be out of the home on a “vacation” basis so I cannot give you a definitive answer. What servicers are doing today as a matter of policy may not be the same as they do tomorrow and unless it is specifically spelled out in your loan documents, there is some room for HUD and the servicer to interpret and change policy. However, I can tell you this for sure: good communication with the servicer goes a long way.
If you have a reverse mortgage and you get the opportunity to travel for extended periods, notify your servicer and make sure they are aware of the circumstances. As long as they are sure that the home is still occupied as your primary residence and that the borrowers have not left the home, they can work with you to make certain there are no miscommunications.The troubles typically start when people think they need to hide something and when servicers can’t get in touch with borrowers, that’s when it really appears the home has been vacated for good and the servicer needs to take action.
Click here to download a helpful .pdf brochure written by our servicing company Celink in regards to occupancy requirements.
Here are some additional posts you may find helpful:
- How does a Reverse Mortgage work
- Understanding Your Reverse Mortgage Statement
- Reverse Mortgages “What Happens After Death”
“Reverse Mortgages; How Long Can You Leave Home” by www.allrmc.com
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PS – We also welcome and respond to comments below…
|bernie2/8/10 2:24am||Reverse Mortgage: Suppose a person takes a job out of state for nine months and then returns home. And then leaves for a month to vacation or take a course. In other words, how restrictive is the “residence” requirement? Does a person become a virtual “prisoner” in his or her own home and have to change their normal resident-lifestyle?|
|Michael Branson 2/10/10 12:55am||Hi Bernie, thanks for your question. The loan documents state that the property must be your primary residence and that if you ever move out of the home for a period of 12 months or more, then the loan shall become due and payable. However, the gray area really gets to what constitutes a “primary residence”. When questioned with this scenario a while back, HUD responded by quoting some of their Handbooks:24CFR206.3 states:Principal residence means the dwelling where the mortgagor maintains his or her permanent place of abode, and typically spends the majority of the calendar year. A person may have only one principal residence at any one time.
Handbook 4330.1 Rev-5, chapter 13, paragraph 22, A, 3 states:
The mortgagor must advise the mortgagee of absences from the property. The mortgagee must be advised of absences from the property in excess of two months to avoid determination that the mortgagor’s principal residence has changed.
One day back in the residence would not represent that the borrower is permanently residing in the home. The servicer should request copies of current utility bills to confirm that the borrower is responsible for payment of the property charges.
The loan was never intended to make any borrower a “virtual prisoner” of their home as your question terms it but HUD does require that the servicers perform an adequate job of due diligence to be certain that the borrower is still living in the home as their primary residence. We have always advised borrowers that the key to a successful reverse mortgage relationship between an active borrower who travels and their servicers is communication, communication, communication! If you know you will be out of the home for extended periods, contact the servicer and make them aware of this fact before they start occupancy inspections because they are unable to locate you.
Although the official consecutive time period out of the home is 12 months, living in the home for a day or possibly even just a week or two in any 12 month period would probably not HUD’s definition of a primary residence whereas a one-time 9 month assignment followed by a vacation with communication to the lender would probably be perfectly acceptable.
When you talk about a “normal resident lifestyle”, this might be a great subject to bring up to your reverse mortgage specialist with specifics of what your last several years living arrangements have been and what you expect them to be in the future. One thing is clear, if you move out of the house and start renting the home, it no longer meets the criteria of an owner-occupied residence and would be subject to being called due and payable.
-Michael Branson (888) 801-2762
|Dave3/3/10 8:34am||What if a person takes an 11 month teaching assignment in a foreign country, does NOT rent out the home and returns to the home, all the while making tax and insurance payments, minimal utility payments, etc? How about an 11 month “missions trip” for a church/para-church organization and then returning to the home, with possibly a NON-RENTING friend acting as a house and pet-sitter during that 11-month absence? Is the Reverse Mortgage still safe under these above circumstances?|
|P Brent3/9/10 11:29pm||What if the loan becomes due and payable after 12 months, and the house is listed with a broker for sale, and they cannot pay the loan. What does one do? I would appreciate an answer………………….should one declare bankruptcy?|
|DeLanne Simmons3/28/10 10:23pm||If you leave your residence for another state, you try to sell it, and the offer you get is less than the amount of the mortgage. I do not think I could sell my home at this point for either the tax valuation or the reverse mortgage balance. What are my options at that time?|
|Michael Brancon 4/1/10 4:38pm||DeLanne,Have you contacted the servicer yet and let them know what the situation is? I honestly do not know what HUD’s provisions are for a short sale scenario when the sale is voluntary but as we have always advised reverse mortgage borrowers, communication is the key.Call your servicer if you have not already done so and explain the situation to them. In this economy, chances are very good that they have had this situation come up before and they can tell you exactly how HUD has instructed them to handle the situation in the previous instances. The information they give you may help you decide how you want to proceed.|
|Matt5/17/10 11:36am||What if the person who had the Reverse Mortgage passed away and with the real estate market being low as it is, the home will not sell.. Will the home go into foreclosure??|
|Michael Branson5/19/10 9:52pm||Hi Matt,The lender/servicer will work with you on the sale of the property and with extensions, they will give up to 12 months before they will begin any type of foreclosure proceedings if they feel that the heirs are making an honest effort to market and sell the property. At the end of the 12 month period, even if the lender were to begin foreclosure at that time, foreclosure proceedings also take several months to complete.The lender’s goal is not to take the property if the heirs are honestly marketing the house because then they would have to step in and do the same thing to market and sell the property themselves. However, if the lender looks at other sales in the market and feels that the heirs are asking too much money or that the terms are in some other way too restrictive to accommodate a reasonable sale, then the lender is not required to continue to wait forever if they know that the home is not going to sell based on the asking price or other terms.
In answer to your question, yes it can go into foreclosure but with good communication with the lender, you really should be able to develop a plan to dispose or the real estate before that eventuality and especially before it gets to be in danger of going to foreclosure sale.
|Polly Sanders8/29/10 1:20pm||Hi I have a reverse mortage, I am 82 years old and I live in chicago, the winters are brutal here, my daughter wants to purchase a home to allow me to visit during the winter months in another state. I would return to my home in the spring/ summer I would be away for about 4 months, can I take this type of extended vacation without getting in trouble with my lender|
|peggy welsh10/6/11 6:12pm||Hi, are we allowed to forwad our mail if we go on a 3-4 month vacation?|
|Mike Branson 10/6/11 7:53pm||Hi Peggy.I hate to sound like a broken record, but this gets back to the same thing we have advised borrowers on so many other questions. Communication! Your loan documents are your agreement with the lender and they state that you must live in the home as your primary residence, that you cannot use the house as a rental (unless you live in a 2 – 4 unit property and the rental income is derived on one of the other legal rental units) and that you cannot move out of the house for a period of more than 12 months. So as long as you are not renting the home out during the 3 – 4 month period, you are not violating the terms of your agreement.However, anytime you plan to be gone for an extended period of time, it is always a good idea to let the servicer know so that there is no question that the home is still owner-occupied or that you are returning after your vacation. As for putting a forward on the mail so that you will not have it piling up at the house, that would not be a problem and your servicer would already be expecting the absence due to the communication.|