3 Options After Death of a Reverse Mortgageno comments
There are a few things you need to do and although you do have some time, time is limited so you need to act without unnecessary delays. The first thing you need to do is decide what you really want to do with the house.
You can keep the home, sell it, or walk away and owe nothing regardless of the amount owed on the loan. Obviously if there is equity still in the property it is to your or the estate’s benefit to keep or sell the property, but you need to act sooner rather than later.
Let’s tackle the options one at a time and talk about what you should be doing for each.
If You Wish to Keep Your Mother’s Home
If you want to keep the home, you need to decide to repay the outstanding balance of the reverse mortgage. You have the right to repay the loan at the lower of the current amount owed or 95% of the current appraised value, whichever is less so if the amount owed is less than the current value, that is what you will need to pay off. If the current value is less than the $300,000 owed, then you would need to repay the loan at an amount equal to 95% of the current value as established by a current appraisal of the home.
If that current appraisal determined a value of $250,000, the payoff in full of the loan would be $237,500. Either way, you would need to let the lender know this was what you wanted to do and make sure you either had the funds available or a new loan ready to pay off the existing loan if you needed to refinance that loan with new financing. Remember, if you need new financing, you may need to complete a probate of the title to change it into your name so that you can get the new loan. Lenders will not give you a loan on a property you do not own so you would need to work with an estate attorney to change the title to your name as quickly as possible to avoid delays.
If You Wish to Sell the Home
If you want to sell the home, I suggest that you first contact a senior real estate specialist in the area where the home is located so that he/she can tell you what the home is worth as is at this time. Keep in mind that it is very possible that the home will need some repairs and an agent who is very familiar with selling homes for seniors in that market will have the best handle on the most likely sales price that could be expected for your mom’s home in its current condition. They are usually the most familiar with other services like estate sales, etc. if you need to clean out personal effects that the rest of the family cannot use.
The quicker the property can be ready for sale, the better and if you try to remove things from the home a little at a time when there is no real need or desire from them by other family members, the task will drag on and take precious time you may not have. You and other family members can remove personal items you wish to keep before any sales take place, then sell anything remaining or donate items left after the sale and use the funds for estate needs or tax purposes (always talk to a tax advisor). The senior real estate specialist will also let you know if a sale is still advantageous or if you should consider your last option.
Option to Walk Away
Depending on the equity remaining in the home (or lack thereof), if you do not want to keep the home or try to sell it, you can always remove all personal belongings and then either talk to the lender about Deeding the property to them or just walking away. There is no recourse with a reverse mortgage so even if your mom owes more than the property is worth or if she has other liens on the property, you can walk away from the house and owe nothing to the lender. I cannot give you advice about any other debts and how they may affect the estate, for that you would need to speak to an estate attorney.
However, the reverse mortgage is a non-recourse loan which means that the lender can never look to you or the estate to repay the loan, their only security is the property itself.
If you do not want to repay the loan and keep the house or try to sell the house, you can just notify the lender that you will not be keeping the home and ask them for instructions to deliver them a Deed in Lieu of Foreclosure and if that is not an option, that the property will be vacant, and they will need to secure it.
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