Yes, a reverse mortgage can end in foreclosure. However, the situations that lead to reverse foreclosure are often very different from those of traditional foreclosures. It's also worth noting that foreclosure is just one of several possible ways to repay the loan when it's due. When a person with a reverse mortgage dies, the loan expires and is payable.
Therefore, there is a possibility of reverse foreclosure. A reverse mortgage lender can request foreclosure to satisfy the loan. But this is the last option, and you can take some steps to avoid it. The property is sold or the title is transferred.
A reverse mortgage loan must be repaid when the title is transferred or the home is sold. Since a reverse mortgage requires capital, there must be sufficient income from the sale to pay for the reverse mortgage. The seller can keep whatever is left over after all the liens have been paid. A reverse mortgage, also called mortgage capital conversion (HECM) mortgages, allows a homeowner to convert the equity they already have in their home into money that they can spend without having to sell their home.
The eligible spouse or non-borrowing heirs can ask the lender or loan servicer to extend the terms when a reverse mortgage borrower dies. If the home is not fully paid for, mortgage payments may become optional or your lender will use some of the reverse mortgage funds to pay the remaining amount of the mortgage. If you have inherited a property that is encumbered by a reverse mortgage, the default will not affect your credit, since it is not your loan, but foreclosure on the home will be the same as in a traditional foreclosure. If you can't afford a reverse mortgage after it's due, the lender will begin the foreclosure process.
Usually, the escrow company uses the money earned by selling the home to pay the reverse mortgage along with other liens. There is an option to return the property deed to the lender without the help of the reverse foreclosure schedule, and it can be completed without court participation or delay. In general, retired individuals or couples apply for reverse mortgage loans to offset living expenses that exceed what the borrower has set aside for retirement.
Reverse mortgagesare not a right and you have assumed other obligations that must be met at all times, such as maintaining the necessary insurance and paying taxes.
I have more than 30 years of experience in the mortgage industry and now focus on helping people understand reverse mortgages. Under official HUD guidelines, you can apply for reverse foreclosure if you don't comply with your property taxes or homeowners insurance premiums. Extensions may not be available for single-purpose reverse mortgages and exclusive reverse mortgages. Another option is to complete a deed instead of foreclosure, or the loan servicer will request foreclosure.
Reverse mortgage borrowers must keep their home in good condition and pay property taxes and insurance. If you don't respond to the lender's correspondence or the 90-day extensions expire without you paying the debt, the lender can initiate foreclosure.