Many believe that housing returns to the bank after the death of the last borrower, but that is not the case. Your heirs will have the option to decide if they want to repay the balance of the loan and keep the home, sell the home and keep the capital, or simply leave and let the lender get rid of the property. If you have a home equity conversion mortgage (HECM), your heirs will need to repay the full balance of the loan or 95% of the appraised value of the home, whichever is less. If you are the heir of a deceased reverse mortgage borrower, you are not personally responsible for paying off the debt, but you are in a position to decide how the debt is repaid.
Conserve the home by buying it with another source of funds. You only have to pay 95% of the appraised value of the home. FHA insurance will cover the remaining balance of the loan to pay off the debt. Deed the home to the lender through a process known as “deed” rather than foreclosure.
By signing this document, you legally transfer the title and therefore the ownership of the home to the lender. When you receive a “due and unpaid” notice, which the lender sends to the borrower's estate in the event of the owner's death, you have 30 days to notify the lender of the action you want to take. The estate may have up to six months to repay the debt. Within six months of the borrower's death, the lender may initiate foreclosure proceedings if no steps have been taken to comply with the loan.
With approval from the Department of Housing and Urban Development (HUD), you can also receive up to two three-month extensions to pay the balance of the reverse mortgage. This would give you up to one full year after the borrower's death to pay off the balance of the loan or sell the house. While the debt must be satisfied for any heir to inherit the home or part of its value, the heirs are not required to repay the debt and are not struggling financially. However, in order to inherit the home or remaining equity, heirs must choose one of the available options to repay the debt.
And yet, there is more protection. A reverse mortgage is a no-recourse loan, meaning that even if they decide to repay the debt and then buy, own, or sell the home, the heirs don't have to pay more than the assessed value of the home. This benefits heirs by effectively preventing reverse mortgage housing from becoming financially “submerged”. Heirs may be eligible to receive two three-month extensions to pay the balance of the reverse mortgage, subject to HUD approval.
Some heirs may lack funds to pay the balance of the loan and may have to sell the home to pay the reverse mortgage loan. If you qualify, these programs are a much better option than getting another type of reverse mortgage. In a reverse mortgage, the lender is not the owner of the property, so the lending institution cannot sell the home if it is reported that the borrower has died or the last eligible non-borrowing spouse has died. If the home has lost value, the reverse mortgage balance is especially high, or you can't afford other options, you may simply need to move away from the property.
Also called “mortgage capital conversion mortgages” (HECM), they allow older homeowners to use their home equity. The heirs must choose between selling the house, leaving, or seeking funding to keep the property. A reverse mortgage or HECM loan will expire and be payable if the borrower fails to comply with property taxes, repairs and maintenance. If they are selling the property and it is still on the market after six months, or are still actively seeking funding, the heirs can contact the managing entity and request a 90-day extension, subject to HUD approval.
If the loan balance is greater than the assessed value of the home, the heirs will not have to pay the difference. Generally, to obtain an HECM reverse mortgage, the borrower must be at least 62 years old, occupy the property as a primary residence and have substantial equity in the property or be a full owner of the home. No, reverse mortgage heirs don't have to assume the rest of the loan balance and are not responsible for repaying the loan. Your heirs will also have to handle the repayment of the reverse mortgage, otherwise the lender is likely to foreclose the mortgage.
Discover options for resolving reverse mortgage problems for heirs and how you can prevent your loved ones from taking on their debts after your death. This means that sometimes the best way to avoid paying off your loved one's debts is to get away from the reverse mortgage problem. . .