What steps can an Heir take if a home with a reverse mortgage is being foreclosed on?
I'm sorry I should have been more clear. The owner has passed away. The executor is looking for options. I believe they have an extension but I'm not sure how long. I guess I'm just wondering if there are any new laws that would apply to reverse mortgages. I've looked online and couldn't find any. thanks for the help
Thank you all for the info.
MRA - Thank you so much for the additional information. I will pass it along to my New York family.
- MRALv 48 years agoFavorite Answer
no new laws per se, unless the home is under water (home is worth less than what is owed).
the only thing still up in the air is whether a relative can buy/refinance the home for what it is worth, and not for what is owed, when the home is under water. it has always been said that you can never owe more than the house is worth. but in 2008, FHA came up with Mortgagee Letter (ML 2008-38) clarifying that a short sale would only be allowed if it was an arms-length transaction (no relatives allowed). if a relative wanted to buy the house after the death of the senior, they would have to pay off the full amount of the loan even if the home was not worth as much. a big furor arose over this, and in Mortgagee Letter ML 2011-16, FHA rescinded their "clarification." they were going to provide "new guidance in the future," but we haven't heard anything yet. so expect the worst, and hope for the best.
That being said, all loans become due when the note holder (senior) dies. you have 3 options to pay off the loan:
1) the heir can refinance the existing mortgage into their own name, and keep the home (assuming they qualify). a reverse mortgage is not assumable, even if the heir is over 62. if the heir is not able to refinance and/or does not qualify for any loan in their own name, they have to sell. the same thing would happen regardless if the loan was a reverse or not.
2) sell the home, and keep the difference after the reverse mortgage is paid off (again, this would apply regardless of the type of loan on the home, reverse or otherwise). with a reverse, you would only be expected to pay off 95% of the loan, as you get a credit for the sales commission.
3) if the loan balance is greater than the home value, the heir can sign a Deed-in-Lieu of Foreclosure and walk away from it legally and ethically. The bank will then take over the title and be responsible for selling it for just as much as is needed to pay off the loan or market value, whichever is less. the bank will not try to make money off it as they are not in the real estate business. since these loans are insured by FHA, the lender will always be made whole later on by FHA.
The good news about it being a reverse is for one thing, the lender will work with you for 6-12 months while you try to refinance or sell the home (if not more, in this economy). interest will continue to accrue each month until the loan is paid off. but you must stay in communication with the lender and make a good faith effort to either sell or refinance. regular forward lenders won't do that.
also, since it is a non-recourse loan, the heirs or the estate are never personally responsible for any shortage. only the home stands for the loan, not any other asset of the estate, or the heirs.
unfortunately, because of some abuse, many lenders will immediately begin the foreclosure process simultaneously while they give you 6 months to refinance or sell, since they know the foreclosure process typically takes 6 months as well. if they wait to begin the process until after they gave you the 6 months to refinance or sell, and then you've done nothing, they would find themselves out a whole year before they can legally take over the home. its a nasty process to go through while the family is grieving; just remember that it is common practice and automated form letters, not a reflection of your family. Work with the lender and document.Source(s): I specialize in reverves mortgages (CA)
- Leaira HathawayLv 68 years ago
The heir would be able to pay off the mortgage and sell the house for market value. But it would be wise to have a professional appraisal first, taking into account any renovations (or lack thereof). It's only wise to pay the mortgage off if the appraised value exceeds the amount owed. In the case of vice-versa, it is best to let it go back to the bank. Since no other names were on the deed, no one's credit will be affected.
- MikeLv 78 years ago
A reverse mortgage won't be foreclosed on unless the owners die or move out and don't pay off the mortgage. An heir who would inherit the house can stop the foreclosure by paying off the mortgage.
- scott bLv 78 years ago
An heir can't do anything. The executor of the Estate would have to deal with the debt.