Reverse Mortgage Foreclosure

So what happens when the last borrower on the reverse loan passes away?

The terms of the loan state the borrower must occupy the property to avoid foreclosure, but if they have died, the loan is now technically considered to be in foreclosure.

However, as long as the Estate notifies Loan Servicing about the situation, they will be given ample time to repay the loan balance.

The Lender does not want to property, in spite of the myth in the general public’s opinion.

Assuming the borrower has family and they are considered to be the “estate”, they have two choices to repay the loan and the Lender will give them up to a year to satisfy repaying it.

List and sell the home.   And that is what most family members do.   They don’t want the home.   They receive any remaining equity, plus a mortgage interest tax deduction for the interest that accrued on the loan ( There are no mortgage payments).

One or all of the family members apply for a traditional mortgage,( have the Title put into their names) and keep the property.   They would still receive a mortgage interest tax deduction in the year they repay the loan back to the Lender.

I do have an excellent booklet for family members that was published by the National Reverse Mortgage Lenders Association that explains the process when it is time to satisfy the loan.

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If anyone reading this post wishes for a copy of it, please contact me and I will send it to you.

Reverse loans have improved thousands of lives of seniors everywhere.   They help with cash flow, paying for caregiving expenses, and eliminate living in fear of running out of money and they have brought comfort and peace of mind for seniors and their families.

They are not defined at predatory lending.  They are well regulated and the protection of the senior is of utmost importance in our industry, and countless seniors and their families are relieved of the financial burden and worry about how to age in place.

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Foreclosures on Reverse Loans

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.

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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.


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Stopping a Foreclosure

Can a reverse loan be used to stop a foreclosure on a seniors property? Yes, it can but it must meet the other loan requirements per the lender.

Sadly, some senior homeowners have found themselves unable to keep up with their mortgage payments or property taxes because of unexpected events such as a health crisis or a major repair to their home and they end up falling behind on their payments, triggering a foreclosure.

If they are not too deep into the process and apply for a reverse loan, there is a good possibility that it can be stopped and they won’t lose their home.

Here is what a reverse mortgage lender will need in regards to the foreclosure from the potential borrower.

  •  Proof of foreclosure and the dates associated with it.
  •  A letter from the attorney handling the foreclosure confirming that the payoff is not a short pay.
  • Confirmation that the borrower is still occupying the property
  •  Confirmation that the borrower is still the legal, vested owner of the property.
  •  Confirmation that the Sheriff’s sale has not taken place, OR that the borrower is still within the redemption period AND vested in title.
  • The borrower must provide a letter of explanation describing what happened to them and what steps they took to avoid having a foreclosure.

Documentation must be provided by the borrower for the reason they fell into foreclosure, which could have been due to income loss, large and unexpected medical expenses or other viable reasons.

This is a very simple overview about using a reverse loan to stop a foreclosure that is in process, however there are additional qualifications regarding “residual” income , the amount that is “owed” and if there is enough remaining equity in the property to complete the transaction.

Please contact me for more details and/or a quote and I will answer any questions about the process and what you need to know.

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