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Selling Your Home after a Reverse Mortgage Loan

January 9th, 2012
     

Is it true that if an inheritor or owner of a reverse mortgage decides to sell the home, and asks less than the amount of the loan, that the reverse mortgage company holding the note cannot request more than the amount the seller asked? – Debbie

Hi Debbie,

The answer is yes and no. You have asked a question that actually covers distinctly different scenarios. If a borrower passes and the home goes to heirs, the lender will also order an appraisal and if the property is worth less than what is owed on the mortgage, the lender will work with the borrowers’ heirs to allow the home to be sold at less than the loan balance.

It is true that the reverse mortgage is a non-recourse loan and the lender cannot look to other assets to repay the obligation. However, when you say that they can “never request more than the seller asked“, that would not be entirely true. The seller could not ask a sales price well below the current market value and expect to be able to sell to say, a family member or friend, at half the current market value and think that they would be able to complete the sale at that amount and the lender would be forced to accept it.

The lender would obtain an appraisal on the home and any payoff amount less than the full mortgage balance would be dependent on that current appraised value or they could still exercise their right to foreclose on the mortgage. The lender would accept any offers near current value since they would not want to have to turn around and market the property anyway to achieve the same or near the same sales price. But they still could not obtain a deficiency judgment.

The second circumstance is if the original borrower decided to sell the home but the value was now well below the outstanding balance, the borrower would still be responsible for the outstanding loan balance (just as any borrower would be on any home they sold). However, the second half of the answer is still the same, that there can be no deficiency judgment if the borrower decided to move or had to move but was unable to pay the balance of the mortgage. In other words, the loan would go into default and the borrower would go through foreclosure, but there would be no deficiency judgment forcing the borrower to pay any amount the lender could not recoup through foreclosure sale.

This would not be a healthy alternative for most borrowers as they would then have to pay to live somewhere else and their credit would be adversely affected (as well as they would not be eligible for any other FHA-insured loans until any losses had been repaid). For borrowers moving permanently in assisted living or nursing homes, this may not even be a consideration. For borrowers desiring to purchase again and who are still active and rely on good credit, this may be a bad choice with lasting repercussions.

You can find more information in our post “Reverse Mortgages after Death”

“Selling Your Home after a Reverse Mortgage Loan by www.allrmc.com

The experts at All Reverse Mortgage® are here to answer your questions! If you have a question regarding reverse mortgages give us a call Toll Free (800) 565-1722

PS – We also welcome and respond to comments below…

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27 Responses to “Selling Your Home after a Reverse Mortgage Loan”

  1. Randy Luebke says:

    One of my financial planning clients was told that in the State of Florida that reverse mortgage loans originated in that State are full recourse loans. I thought that all reverse mortgages were always non-recourse in all 50 States. Can you please set the record straight so that I can provide my client with the correct advice?

    Thank you!

  2. admin says:

    Hi Randy-

    They are non-recourse loans and the Note and Deed specifically state that fact. Your customer gets a copy of the legal documents at time of application and can verify this for himself/herself prior to even returning the package to the lender. I will email you a sample copy :)

  3. Pam Heard says:

    My mother passed away a year ago and my sister, appointed Personal Representative, has had the house on the market. She has rejected offers claiming that they did not meet the 95% of appraisal value (I don’t know if she actually presented the offers to the mortgage company or rejected them due to personal greed).

    I just received a notice of foreclosure on the home. The judicial assistant from Probate Court informed that today my sister applied for a Deed in Lieu of Foreclosure.

    What are my options to deal with this situation? I do not want this to impact my credit report. My sister has not communicated with other family members during the past year making all decisions.

    Thank you

  4. Mike Branson says:

    Hi Pam,

    I’m sorry but I don’t think I have enough information to make any recommendation here or maybe I don’t quite understand the total picture. If you would like to give me a call and discuss this, I would be happy to see if I can shed some light on further options or if I need to refer you to competent legal counsel, but I can clear up a few things for you here.

    Firstly, if the current reverse mortgage exceeds the value of the home, then the lender with HUD’s approval will determine what offer they will accept on a “short sale” as it will be less than the full amount owed on the mortgage. The lender (and HUD through the lender) will work with heirs of the borrower for as long as possible due to the fact that if they would only have to do the same steps as a diligent heir to sell the home. If your sister has received several very low offers, they may have been refused if the lender does a market survey and sees that other competing properties are selling for higher prices. If this is the case or if they have not seen any offers, sooner or later, they have to take the step of beginning foreclosure so that they can market the property themselves and finally sell it.

    If your sister approached the lender for a Deed in Lieu of Foreclosure, that is simply where the owner of the property signs the property back over to the lender so that the lender can take immediate title to the property instead of having to go through a foreclosure action. If your sister has been marketing the property and for the last year has been receiving only low offers, this could just be her was of giving this task back to the lender. You have to remember that the Deed in Lieu of Foreclosure is against the original borrowers, not you. So anything filed, whether it is a Deed in Lieu or a foreclosure will not affect your credit in any way.

    I’m sorry that you and your sister are not communicating, but I think you can rest easy that aside from possibly having to find a new place to live before you were ready, there will be no ill-effects on you due to this action.

  5. Pace McNealy says:

    My mother has a reverse mortgage. The value of the property is worth far less that the amount owed on the reverse mortgage. My mother has decided to sell the property to her daughters. The lender has agreed to accept the 95% appraised value. My question(s) is (1) Is this considered a short sell and will my mother received a 1099 showing the difference between the sell amount and the reverse mortgage amount as taxable income. (2) will her daughters be responsible for the balance of the mortgage?

  6. Mike Branson says:

    Good Morning,

    This is a great question and one that I can answer for you but one with which you should also follow up with a tax expert after you get the answer to see how it affects your circumstances. Firstly, the reverse mortgage is a non-recourse loan which means that the lender can only look to the property to settle the debt. This means that the daughters or anyone who purchases the property after your mom cannot be made to repay any balance of the loan that was not paid by your mother.

    The second part of this answer is where you need to consult a tax professional. The lender is required by the IRS to issue a 1099 to any borrower who pays less than the full amount due on their mortgage loan based on IRS regulations. I have spoken with servicing professionals and I have been informed that the 1099 that the borrower receives is the “1099 C” form and item #5 asks if the debtor was personally liable for the debt. Reverse mortgages are non-recourse loans and therefore, this item is not marked as “yes”. This is where your tax professional can explain how that will affect your individual circumstances.

    However, there is good news for you. While the H.R. 3648, Mortgage Forgiveness Debt Relief Act expired on December 31, 2012, it is reported that The American Taxpayer Relief Act of 2012 that has just been signed into law (which is the fiscal cliff negotiations we have all been hearing about) has extended protection for borrowers of short sales and loan modifications from tax liability up to $2,000,000 until December 31, 2013. While I have not had the opportunity to read the entire legislation yet, it is reported to allow borrowers protection from taxation on “income” due to debt relief through the end of this year. Again though, before you make any plans or do anything, a consultation with a tax professional is always advised!

  7. Tonya says:

    I am looking at a house that has a reverse mortgage on it. Is it possible to do a rent to own on a reverse mortgage loan?

  8. Mike Branson says:

    Hi Tonya,

    The existing reverse mortgage would become due and payable as soon as the original borrower sold the property or was no longer living in the home as their primary residence. for this reason, a rent to own sale would not work if you wanted to keep that financing in place during the rental period.

  9. joan keen says:

    I have a reverse mortgage for $280000, the house has been assessed at $260000, I need to sell for health reasons, can I sell it for $260000 and then does the government insured reverse mortgage loan pay the difference to the lender.

  10. Mike Branson says:

    If you have to sell your home and the loan balance is higher than the value of the home, the lender will also get an appraisal of the home and then will seek approval from HUD and then allow you to market the property for current value.

  11. B. L. Beardsley says:

    There are two different amounts on a conversion mortgage with FHA and the Bank. I did not know that at closing and that issue has been very troubling because there is a large descrepancy between the value of the home and the amount that Fannie Mae is evidently allowed to claim. The broker who misrepresented the loan numerous times has been reported to my State where he is licensed. So when this same individual called to inform me about the second contract the lawyer at my home never mentioned (Countrywide affiliated?) I was told not to worry about the descrepancy because Fannie Mae can record a contract that lists the maximum amount they can loan in my county but that I do not repay that amount. If this is the case, what is the purpose of this much higher amount? Later it was mentioned to me that Fannie Mae can decide not to require that amount. The entire reason I took this loan was to upgrade my home so that I could sell it and retire within 10 years because I live in a state where the taxes are so high many Seniors like myself cannot afford to continue to keep their homes. There is a cap now but that can be circumvented via a committee which operates on the State level. Such was the case for me this past year when the mayor wanted a 30 percent increase! And this is one of the reasons that Seniors that do not have a huge savings should forgo this type of loan. And it is important to remember that Fannie Mae’s contract is the important one because of their requirements to change interest rates, allow banks to charge fees, equity that is used is the source of the nightmare charges, etc. A minimum of a CPA and an attorney (not a real estate attorney) should review the Fannie Mae contract and compare it to the bank contract before jumping off this cliff.

  12. Mike says:

    we currently have a reverse mortgage and intend to sell our home in June 2013. We owe @
    80,000. Our house value is @ 250,000. Our current available line of credit is @64,000. My question: After our lender gets 80,000 at settlement do they give us the current line of credit balance, or with the payment of the 80k, is the account closed and thus we get the 170,000 (difference between 250 and 80? thanks

  13. MAUREEN QUINN says:

    HUSBAND DECS’D 3/2012-REVERSE MTGE WITH FIN’L FREEDOM,NEVER TOOK A LINE OF CREDIT, I THINK HE PAID OFF THE MTGE WE HAD SO WE COULD STAY IN THIS HOUSE, AS HIS BUSINESS DECLINED AND HE WAS IN BAD HEALTH ,WE TOOK REV-MTGE IN 2008, I AM 75, AND HAVE HAD CANCER AND OTHER MEDICAL ISSUES..I AM THINKING ABOUT SELLING
    THE HOUSE AS IT IS HARD TO KEEP UP-CHILDREN DO NOT WANT THE HOUSE,THEY ARE NOT ON THE DEED-I KEEP THE REPAIRS UP AS NECESSARY-WHAT STEPS DO I NEED TO TAKE IF I TRY TO SELL-I KNOW I NEED AN ATTORNEY BUT DO I HAVE TO GET AN APPRAISAL ON THE PROPERTY, THE HOUSE IS NOT IN GOOD SHAPE BUT AFTER 17 YEARS
    IS SHOWINGS ITS AGE–FINANCIAL FREEDOM TOLD ME YOU HAVE TO WAIT TILL 2 MONTHS BEFORE CLOSING IF YOU GET A BUYER AND THEY WILL GIVE YOU A PAY-OFF FIGURE-SUPPOSE THE PAY OFF FIGURE IS MORE THAN I CAN GET FOR THE SALE OF THE HOUSE–IF I GET MORE FROM THE SALE AND CAN PAY OFF THE BALANCE OF THE REVERSE MTGE–DO I GET TO KEEP BALANCE OF THE SALE–ALSO AM i RESPONSIBLE FOR THE CLOSING FEES, SEARCH FEES-TITLE FEES-ASSAY FEES? I STILL MAY STAY IN THE HOUSE BUT I AM THINKING ALSO OF RELOCATING TO FLORIDA TO HELP MY DAUGHTER–I PREFER TO STAY HERE BUT THE HOUSE IS GETTING TO MUCH FOR ME PHYSICALLY–WHEN MY HUSBAND CAME DOWN WITH ADRENAL CANCER AND ALZEHEIMERS-I HAD TO LEAVE MY JOB OF 17 YEARS–I WENT THRU MOST OF MY SAVINGS COVERING MEDICAL BILLS THAT MEDICARE DIDN’T COVER -HIS MEDICATIONS SOMETIMES WERE HIGH WHEN HE WAS IN THE GAP–I HAVE USED MY SAVINGS FOR HOME REPAIRS WHEN I HAVE HAD TO–MY EMPLOYER OFFERED ME A PART-TIME POSISITION WHICH I LOOKED FORWARD TO BUT IT
    NEVER CAME TO FRUITION- I ALSO CAME DOWN WITH CANCER TWO WEEKS BEFORE HE WAS OPERATED ON……..WHAT IS MY RESPONSIBILITIES WITH THE SALE OF THE HOUSE
    IF I MAKE THE DECISON TO SELL? FINANCIAL FREEDOM IS NOT TO FORTHCOMING IN ADVICE –I WAS TOLD BY CUSTOMER REP I COULD JUST WALK WAY FROM THE HOUSE OR SELL—FROM A LEGAL STANDPOINT WHAT ARE MY RESPONSIBILITIES? THANK YOU

  14. Mike Branson says:

    Hi Maureen,

    You have a good idea of what the payoff balance will be just based on the monthly statements that you receive. The first step I would do in your place would be to contact a knowledgeable real estate agent in your area and find out what prices houses like yours are bringing at sale. If the houses are selling for more than you owe, then yes, you can sell the property and anything you receive above and beyond the loan balance is yours. If however, you find that houses are selling for less than what you owe, you are under no obligation to sell the home or do anything really.

    If you know there is no equity, you can simply contact your lender, tell them that your health and the work required to maintain the home now requires that you vacate the home. You can tell them that you do not want to sell the home yourself and that you would be happy to work with them to transfer the property to them so that they can sell it at their earliest convenience and they cannot seek repayment from you from any other assets. Obviously, they would rather you continue to occupy the home but if you are physically unable to do it, you just need them know. You would not be eligible for another reverse mortgage or any other FHA insured loan, but if you are not planning on buying another house, this does not sound like a consideration in your case.

    The reverse mortgage is meant to allow you to stay in your home for the rest of your life without having to make a payment. Housing prices in many parts of the country are beginning to rise again so staying in the home may be the best economic decision for you, but you also have to consider your health. Just know that if you can’t sell it, you can never be made to pay anything more on the loan than the house’s value so your decision should be made as to what is best for you.

  15. Mike Branson says:

    Hi Mike,

    It’s just like any other loan at payoff. They don’t give you any additional funds but you only pay off what you owe. In other words, you will pay off the new balance of $80,000 plus any additional fees and interest and then when you sell the home, you will keep the entire amount above and beyond the final payoff amount.

  16. Janet Fisher says:

    My mother passed away and had a reverse mortgage on the house and 2 of her 8 lots. We have recently learned the underground oil tank has leaked and needs removal, along with surrounding soil. Furthermore the well may be decommissioned. House has an infestation of post beetles. Long story short the reverse mortgage has a balance higher than the worth of the house and 2 lots. We want to walk away and let the bank take the house. However we are concerned her heirs will be liable for the oil tank removal and soil removal. Can the bank come back to the remaining property and take some of our proceeds when we sell off those extra lots? Can her estate be held responsible for the cost of dealing with that leaking oil tank?

  17. John says:

    Question: mother took a reverse morgage when the housing market was in free fall 2011 and this was the las vegas housing market, possibly hit the hardest. Her end is near has she is in hospice care. since 2011 the house has recovered some value. Loan is 85k I believe back then appraised at just 100k. Home now shows on interent worth 122k. Keep in mind in the 00′s this house was valued well above 200k. Anyway, there is equity here. I only have a year, I have bad credit. Would a bank still give me a loan for the 85k based on the new apprasial value of 122k. No risk to them? Can i file chapter 13 and have five years to pay off 85k? Please advise

  18. Mike Branson says:

    Hi John,

    I can’t advise you on the new loan, I do not originate any forward mortgages any more so I don’t know what options you have there. You do own the house now though so the equity is yours and you can sell or refinance the home, whichever option is best for you. If credit is an issue and you want to keep the home, there have recently re-emerged several less than prime lending sources so you could start by contacting any one of them to see what their lending criteria is. I’m sorry, I don’t work with any of them and I do not have a recommendation for you. I do wish you the best.

  19. Mike Branson says:

    Hi Janet,

    You really should consult a real estate attorney licensed in the state where the property is located as I can’t tell the whole scenario from your question. What I can tell you is that the HUD HECM reverse mortgage is a non-recourse loan meaning that the only recourse the lender has is the property which secures the loan. The bank cannot look to any other assets of the borrower or the borrower’s heirs for repayment of the loan. How the lots are split and what constitutes the reverse mortgage property though I certainly cannot comment on and that is where the attorney will certainly be well-worth the time and investment.

  20. A Hoffman says:

    Question: My husband and I are looking at a farm that is a reverse mortgaged property. The original borrower passed away a little over 6 months ago and the heirs are trying to sell it by doing a sale by owner. As prospective buyers, what steps should we take if we are interested enough to make an offer on the property. I fear that this is a bit more tricky than a regular house sale and do we need to watch to make sure the time does not go past 12 months? Any help would be greatly appreciated. Thank you.

  21. Elizabeth Connor says:

    Hello – First let me say thank you for a great blog and sincere understandable responses. These issues are stressful and confusing and the resource you are providing is very helpful. Here’s my situation. My mother had a reverse mortgage and passed away in January 2013. Because my siblings and I were told we had a year to decide what to do with the house, we made the mistake of not communicating immediately with the lender and discovered in late May that foreclosure proceedings had started in march! Fortunately, when we made contact with the lender in early June, we were told we could still sell the house. So, we found a trusted realtor , listed the house “as is” and received a few offers. The lender did an appraisal and recently accepted a cash offer well below the value of the loan, with a closing set for August 15. All seems well, but here are my concerns: 1) As an heir and administrator of the estate, what are my responsibilities at this point in the process? What will be required of me to complete this deal?
    Next question: The deal may be shaky for two reasons: a) the lender is asking for a HUD settlement statement, which my realtor says she can’t provide because of CT state laws, and b) Mother’s 1910 house is in poor condition and will likely need repair work for plumbing, possible lead paint and asbestos. If this deal falls apart, can my siblings and I walk away from the property or will we need to continue trying to sell it? Thank you for any assistance you can provide.

  22. Mike Branson says:

    Hi Elizabeth,

    A HUD Settlement Statement, otherwise known as a “HUD I” is simple the statement that is provided to every party whenever a transaction closes that details the transaction. It does not have to be a HUD insured loan for the Title Company or Attorney to issue a HUD I Settlement Statement. Most companies require both an estimated statement prior to close and then a final statement at closing. this should not create anyone any issues since all it will do is breakdown the entire transaction for the parties and show all fees and what money goes where.

    As for your further responsibilities, the reverse mortgage is a non-recourse loan. You have no further responsibility to the transaction and the lender cannot seek repayment from any of you, they can only look to the home for repayment of the debt. As for requirements of you to complete this deal, if the foreclosure is completed prior to the sale, then the lender can sell it without your involvement at all as they would then own the property. As it is now, you would only be required to assist with the final sale since the property is still under your control and ownership.

  23. Mike Branson says:

    There really shouldn’t be any additional issues for you to be concerned with other than the price/existing balance. The only thing you need to consider is whether or not the sale price covers, or more than covers, the amount owed on the current reverse mortgage. If not, then the lender will have to be involved in the process to be certain that they will accept the amount less than owed as payment in full. If the sale price more than covers the existing balance of the reverse mortgage and the property has not gone into foreclosure, the sale will transpire like any other sale.

  24. Annette says:

    My mother got a reverse mortgage years ago. Recently, one of her grandsons offered to have her move in with him and his family to cut costs. Even without the mortgage, she was still struggling to pay her other bills. My sister has been in contact with the reverse mortgage company because she wants to buy it. The problem is a realtor told my mom it probably wouldn’t sell for more than $100,000 because it needs a lot of repairs but the reverse mortgage company is telling my sister since my mom is still living any heirs that want to purchase the property for the full amount which is $160,000. There is no way we can obtain financing higher than the property will appraise. I would just let it go and let the bank deal with it but my sister doesn’t want to let it go for sentimental reasons. Do you have any advice in handling this situation?

  25. Stewart says:

    If a home owner with a reverse mortgage on the home wishes to sell the property do they have to obtain permission from the mortgage holder before putting the property on the market?

  26. Mike Branson says:

    Hi Stewart,

    The owner of the home owns the house, not the mortgage holder! The owner(s) decide when to sell the house and do not need any permission from the lender to do so. You get a monthly statement so you know how much you owe at any given time and therefore you have that information available to you when you meet with real estate sales people.

  27. Mike Branson says:

    Hi Annette,

    You have a situation that is not as clear as white and black here. The problem is that borrowers’ families could begin moving all parents out of properties now that values are beginning to rise again now while they are still low and purchase the homes at 95% of current value if they were looking for an angle to make some money when the property values began to rise. I would advise you to work with the servicer and with HUD to defend your case of your mother having to move from the home, that this is not an effort to take advantage of current values and a rising market and make a case for yourselves. If they know your mom has to move out no matter what, they can only sell the property for fair market value so a sale now makes sense if it saves them costs, but by the same token, they have to protect themselves and HUD from those who would take advantage.

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