lender junk fees
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.
In my previous post I discussed the one fee or expense on reverse loans that conventional mortgages do not have. And that was the FHA insurance premium for MIP.
Conventional mortgages allow what some would call “Lender junk fees”, which typically are for processing, underwriting and other “back office” costs the lender will pass on to the borrower. And they can add up to additional $1800 to $2000 on a traditional mortgage.
But they are not considered “allowable fees” to a reverse mortgage borrower and cannot be charged and built into the loan.
What are the fees that a reverse loan applicant can expect?
- Flood Certificate – Pulled by the Appraiser
- Appraisal fee
- Credit Report
- All title settlement, title insurance, transfer fees and recording fees. These are based on the loan amount, the Title company and county or state.
- Document preparation fee
- Payees; all third party fee and third party providers must be disclosed on the HUD-1 Settlement Statement per RESPA. List all required loan fees, including fees paid outside of Closing on their worksheets.
All HECM/Home Equity Conversion Mortgage are subject to FHA’s requirements on allowable closing costs.
In my next post I will provide a list of fees that are not allowable and cannot be passed on to the borrower.