Step 2. Contact a real estate specialist
Contact an elder real estate specialist in your area. You may not even want to sell the home, but knowing how much it would most likely bring in a sale is best. This type of specialist can also help you with estate sale information if you need it.
Step 3. Make sure you gain legal title
Perfect your title to the property. The home may need to go through probate to sell or transfer the title to you, a relative, or a third party. Contact an estate attorney to determine the best and fastest way to accomplish this (if the borrower had an attorney, that would be a great place to start).
The attorney can advise you of any potential delays or liabilities for transferring the title. However, you can’t transfer the title to anyone else in a sale or otherwise if it is still in the original owner’s name.
Step 4. Decide if you wish to sell the home or walk away
Decide if you want to keep the home, give it to a family member, sell it, or walk away and let the lender take it back. If you decide to keep the house, you must pay off the mortgage balance or 95% of the current market value
if the balance is more than the home is worth.
If you decide to sell the home
or give it to another family member, having the elder real estate agent ready to go and title in your name will get you going in the right direction.
Step 5. Provide a letter of intent to your loan servicer
Talk to your reverse mortgage lender
. The lender will probably have found out about the passing already. Once you have all your decisions made and are ready to act, if the lender has not contacted you already, you are prepared to get the lender to tell them your plans.
They may have contacted you to let you know the loan is due and payable, but they may not have your information. If you know what you want to do and can contact them with your plans in place before they even notify you (their contact info will be on the statement), then your plans will not be delayed by them not being ready to act when you are prepared to sell or refinance the loan.
They have things they must do on their end, including appraisals, contacting HUD
, etc., and if you are ready to proceed, you can eliminate unnecessary delays.
Step 6. Remove personal items from the home
If all plans point to the fact that the property is not worth enough to sell and you do not want to keep it, get ready to walk away. Remove all your loved one’s belongings from the property you wish to keep.
Then, the senior real estate professional you consulted can probably connect you with an estate sales professional in the home. These individuals will conduct a sale of all the personal items you did not remove and then donate all remaining items at the end of the sale.
Often, this can help pay final expenses and provide some tax benefits with donations. Be sure to talk to your tax specialist to determine what receipts you need to file the final tax returns.
Do you have to repay a reverse mortgage?
Yes, a reverse mortgage is a loan, just like any other, requiring repayment. No payment is required on a loan for as long as at least one of the original borrowers (or an eligible non-borrowing spouse) on the loan continues to live in the home and pay the taxes, insurance, and other property charges (i.e., HOA dues) on time. The loan becomes due and payable after the last borrower or eligible spouse leaves home, but you can make payments before that time with no prepayment penalty if you desire (but it is not required). The great thing about reverse mortgages is that you can choose when and how you repay the loan.
Can you pay back a reverse mortgage early?
Yes, you can. You can make full or partial payments if you choose to do so. Reverse mortgage loans do not have any prepayment penalties.
What happens if you don’t pay back a reverse mortgage?
A reverse mortgage loan is only due and payable when no original borrowers or eligible spouses are living in the home or if you fail to pay your property charges promptly. If the balance is not paid off through a sale, refinance, or other acceptable funds, the loan will go into foreclosure
like any other loan. Still, the loan is a non-recourse loan, meaning the only security the lender has is the property.
Can heirs walk away from a reverse mortgage?
The heir(s) to a home with a reverse mortgage loan can walk away from a property if that is their wish. A reverse mortgage loan is a “non-recourse loan,”
which means you can never owe more than the home’s value. Suppose an heir inherits a house where the accrued balance was to be higher than the current home value. In that case, they can sign the property over to the lender servicing the loan without any further obligation to the lender.
What happens if you inherit a house with a reverse mortgage?
The first step for any heir would be to ensure they have the right to speak with the lender. Most lenders cannot talk with a third party about a loan unless that individual has authorization from their borrower in advance or they are the new title holder. Therefore, if you know in advance that you are to inherit a property with any loan on it, you should speak with the owner and verify that there is a trust naming you as the successor beneficiary and that they add you to the title in advance or that they at least write a letter to their lender authorizing you to speak with them and them to you on all matter relating to the loan. Next, take immediate steps to determine what you wish to do with the property. Remember, you cannot sell or refinance the home until you own it, which may require probate. The reverse mortgage will be due and payable, and the lender will be looking to see that you are taking positive steps toward retiring the loan (paying off the loan with your funds or a new loan in your name or selling the property and paying it off with the sale proceeds). If the loan balance is higher than the current value, you also have the option to pay the loan off at 95% of the current market value or the amount owed, whichever is less. Still, you need to be sure you can obtain a new loan for 95% of the value if you do not have the funds readily available. If you do not wish to keep or sell the home, you may contact the lender and let them take the property and owe the lender nothing. To deed the home to the lender, you must have the title. Otherwise, the lender can begin a foreclosure action (which does not affect you or your credit).