3 Options After Death of a Reverse Mortgage

November 17, 2022 By Mike Branson Jr. 9 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.

reverse mortgage options after death

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.

Non-Recourse Loans

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.

Also See: How Reverse Mortgages Affect Heirs & Inheritance

9 Comments on “3 Options After Death of a Reverse Mortgage”

Admin August 18, 2023

Sheila R.August 18, 2023

My mom has a reverse mortgage she passed 10/2/22, and the house is up for sale. Me & my sister have been living in the house. Is the reverse mortgage charging us a monthly fee to living in the house? I asked my brother, the estate executive, but he has yet to respond.

Reply
- Admin August 20, 2023
  
  ReverseMortgageReviews.orgAugust 20, 2023
  
  Hello Sheila,
  The lender can't charge you a fee for living in the home. Your mom, her estate, or her heirs (depending on the status of the title at this time) owns the home. The lender doesn't! They cannot charge you to live in your mom's house. Since they don't own it, they have no right to rent it to you or anyone else. Having said that, please remember that the interest continues to accrue on the loan for as long as the loan remains outstanding and unpaid. But the interest accrues whether you live in the home or not. The interest owed on the outstanding loan balance has nothing to do with anyone occupying the home.
  
  Reply
Admin October 4, 2023

Carol B.October 4, 2023

My concern is not any of the topics you discussed. I'm concerned that while the house was in my name before I married that when I die, my husband will have six months to sell the house and probate can take two years which means he would have to forfeit his rights of the house. We thought about selling it now, but my age that would be very stressful for me 85. My husband is 10 years younger so he would definitely want to sell the home but if probate will keep him from doing that will have to sell home now. Can you help me with this question?

Reply
- Admin October 9, 2023
  
  ReverseMortgageReviews.orgOctober 9, 2023
  
  Hello Carol,
  
  Is there some reason you don't want him on the title and on the loan now? You can easily eliminate all those issues by just adding him to title now and doing the loan in both your names. Then he does not have to do anything when you pass, he will already be on title and on the loan. He can still sell the home then if that's what he wants to do, but he would not be forced to do so. You mentioned that he would be able to sell the home after you passed and after probate anyway, so why not just add him to title now and not worry about it if that is your intention after you pass anyway?
  Any title attorney or title company can assist you with the change of title to ensure that you do not create a taxable event with the family transfer of ownership and the Grant Deed is very simple, going from you to you and your spouse. It's harder and you need to jump through more hoops to close a reverse mortgage and keep him off the loan as a married couple than to just add him before the loan closes anyway and since that appears to be your ultimate goal, it seems to me it would be so much easier.
  I would encourage you to talk to your estate/family attorney if you have any questions at all because there may be other issues depending on heirship requirements in the state in which you live but it should be a fairly easy process if the state does not impose any heirship restrictions or if you have no children.
  
  Reply
Admin October 10, 2023

LisaOctober 10, 2023

Good afternoon. I inherited a home with a reverse mortgage in April 2023. The house is still in trust, and the home is on the market as there is a good amount of equity compared to the balance owed. That said, the mortgage debt continues to accrue interest and PMI, which is approximately $1900 per month. My question is, where is that money going? Is it going into the deceased bank account? Or some other account? I understand that a reverse mortgage is taken out to increase a person's monthly income. My question is, if the debt continues to accrue, then that "income" must go somewhere. I will reach out to the attorney who is the executor, but I wanted some baseline information before I do this.
Thank you.

Reply
- Admin October 11, 2023
  
  ReverseMortgageReviews.orgOctober 11, 2023
  
  Hello Lisa,
  
  It all depends on the type of reverse mortgage that the borrowers had. If the borrowers had a loan that paid them a monthly payment, those payments should have stopped as soon as the borrowers were no longer living in the property as their primary residence. That would mean that, most likely, the balance that is building now is just interest and mortgage insurance accruing and being added to the balance owed each month. There would be no money "going" anywhere. There is a balance on the loan that accrues interest, and mortgage insurance continues to accrue for as long as the loan remains unpaid.
  
  Think of it like a credit card. If you owed a balance on a credit card, even if you were not spending on the card but stopped making monthly payments, which reduces the amount owed, the balance on the card would continue to go up. Interest would continue to accrue on that balance even though you were not spending money on that card. The same thing is happening on the loan. Interest continues to accrue as long as the loan has not been repaid. It doesn't mean money is being sent anywhere, but the unpaid balance accrues interest (and the loan is still insured, so MIP continues to accrue). Also, remember that interest rates have risen sharply over the past 18 months, so the sooner you can repay the loan, the less interest you will pay and the more equity you will preserve.
  
  Reply
Admin February 23, 2024

PamFebruary 23, 2024

What happens when the company auctions your home? Do the heirs have any rights and what's the timeline?

Reply
Admin February 23, 2024

PamFebruary 23, 2024

HOW MUCH TIME IS ALLOWED AFTER AUCTION REDEMPTION PERIOD

Reply
- Admin February 26, 2024
  
  ReverseMortgageReviews.orgFebruary 26, 2024
  
  Hello Pam,
  Heirs have the right to pay off the loan and keep the house. They can also sell the property and use the proceeds to pay off the loan, or they can walk away owing nothing. Additionally, they can pay the loan in full at an amount less than owed if the property appraises for less than the amount owed, as HUD will allow them to pay 95% of the current market value, even if it is less than the actual amount owed. However, this must be done before the lender conducts a foreclosure sale.
  For a property to be offered for sale at a foreclosure auction on a reverse mortgage, the lender must first determine that the borrowers had defaulted on the loan (by no longer living in the property, failing to pay the property charges, etc.), or that they have passed away and the loan is due and payable, and no heir has stepped forward to repay the obligation. From the time the owners pass until the loan is placed into foreclosure, and ultimately sold at a foreclosure sale, there is usually more than a year's time, and it can take multiple years in some cases. If the lender proceeds with a foreclosure sale and it reaches the point of sale at auction, your only options are to pay off the loan in full to avoid the foreclosure sale or to purchase the home at the auction like any other bidder.
  The best course of action is to contact the lender before the property goes to a foreclosure sale. They will typically work with you to allow a sale to take place. However, they can only delay for so long and will expect you to present them with a viable exit solution that includes a plan to repay the obligation. If you do not have the home on the market, if your asking price is not in line with other sales in the area, or if there is no reasonable expectation of a sale in the near future due to other circumstances, the lender will continue with the foreclosure process. It takes at least 5 - 6 months to foreclose on a property, sometimes much longer from start to finish. They seldom start that process as soon as the loan is due and payable, which occurs upon the passing or relocation of the last borrower on the loan.
  
  Reply

LENDERS

EDUCATION

LOAN TOOLS

3 Options After Death of a Reverse Mortgage

Mike Branson Jr. – Author

If You Wish to Keep Your Mother’s Home

If You Wish to Sell the Home

Option to Walk Away

Non-Recourse Loans

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