When a senior or seniors wish to apply for a reverse loan, there are many safeguards in place to protect them from financial abuse, typically from a family member and also from making a decision that may not be the best option.
There are many regulations and oversight by HUD to protect seniors from being scammed and losing their homes, but unfortunately, misconceptions continue and some seniors and their families believe that the bank will take their home and the Lender takes advantage of seniors.
None of which is true. Here are the responsibilities of the reverse loan borrower and how they can prevent foreclosure on their home.
- Before they can apply for the reverse loan, they must complete phone counseling with a HUD-approved counseling agency. The purpose of the counseling is to make certain the senior understands how the loan functions, why they want additional money, and is anyone trying to take financial advantage of them. They cannot begin the loan process unless they have done the counseling and have a HUD Counseling Certificate provided to them.
- They must occupy the property. (One borrower can be in assisted living as long as the other continues to live in the home.)
- They must pay the property taxes and not be late on them when they are due.
- They must keep their home insured with Homeowners’ insurance.
- They must keep the home in good condition and repair.
If they are delinquent on taxes or insurance, Loan servicing will contact them and ask if they need help with the payments, or maybe they just forgot to pay them. And the Lender will provide them enough time to pay what is owed on their insurance or their property taxes.
But they might receive a letter stating they are potentially in foreclosure.
This is the responsibility of the homeowner and is clearly stated in the loan application and Loan documents. Plus the HUD Counselor will discuss this with them as well.
The borrower must continue to pay property taxes and Homeowners’ insurance, otherwise, it can trigger foreclosure and it is clearly disclosed to the potential borrower during the loan process.
When the loan is being processed, the Underwriter will review 24 months of property tax and Homeowner insurance, and if late payments have taken place, the Underwriter might suggest that some of the funds from the reverse loan, be set aside for future payments on these obligations.
Since the borrower is obligated to occupy their home, what happens when they pass away? Technically, they are no longer occupying the property, per the terms of the loan and that would trigger the foreclosure process.
Continued in the following post.
I just read the following stunning statement about how much American seniors have in home equity. It is an enormous figure and seems to be growing upwards every quarter, and is now at $7.54 trillion dollars.
But many seniors still have a mortgage on their property and have to make mortgage payments and its become extensively more difficult in the last few months due to Covid-19 and how it has impacted millions of Americans and their savings and retirement funds.
Many American homeowners who are unemployed due to the Pandemic are extremely concerned about making their mortgage payments and have entered into forbearance plans with their Lenders. Their payments will be deferred for a period of time, but depending upon the terms of the agreement, the homeowner might be faced with a balloon payment.
If they don’t have funds, to begin with, how are they going to pay whatever the amount is when it becomes due in a few months?
But if the homeowner is a senior, they can use a reverse loan, pay off the mortgage they have, and not have any more monthly payments. The Title stays in their name, no prepayment penalties and when they pass away, their home goes to their estate.
This is one of those times when it is seriously advantageous to be a senior in America. A reverse mortgage can help mitigate market risks and provide some financial security to them during this very difficult time in our country.
And it is a very intelligent solution to eliminating money insecurities.