If you are the heir to a borrower who has a reverse mortgage who has passed, here are the steps we recommend you follow:
Time to Payoff Reverse Mortgage
Generally you will have up to 6 months to refinance the reverse mortgage into a loan of your own, or up to 12 months to sell. (Each 3 months requires an extension by the loan servicer.)
Locate the last reverse mortgage statement. We have guidance here for how you can read the statement, so you know what you are dealing with.
Contact an elder real estate specialist in your area. You may not even want to sell the home for sure, but it is best to know how much the home would most likely bring in a sale.
This type of specialist can also help you with estate sale information if you need it.
Step 3. (Can be working on at the same time as one and two)
Perfect your title to the property. The home may need to go through probate to sell or transfer title to you, to a relative, or to 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 title, but you can’t transfer title to anyone else in a sale or otherwise if it is still in the original owner’s name.
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 you want to keep the home, you will need to pay off the balance of the mortgage 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.
Talk to your reverse mortgage lender. Once you have all your decisions made and are ready to act, if the lender has not contacted you already, you are ready to contact the lender to tell them your plans.
The lender will probably have found out about the passing already.
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 ready 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.
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. Be sure to have all your loved one’s belongings removed from the property that you wish to keep.
Then the senior real estate professional you consulted in the beginning can probably connect you with an estate sale 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.
Many times, this can help pay some final expenses as well as provide some tax benefits with donations. Be sure to talk to your tax specialist to determine what receipts, etc. you will need to file the final tax returns.
Top 5 FAQs
Do you have to repay a reverse mortgage?
Yes, a reverse mortgage is a loan just like any other loan that does require repayment. The great thing about reverse mortgages though is that you get to choose when and how you repay the loan. There is no payment required on the 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 any other property charges (i.e., HOA dues) on time. The loan becomes due and payable after the last borrower or eligible spouse leaves the home, but you can choose to make payments before that time with no prepayment penalty if you desire (but it is not required).
Can you pay back a reverse mortgage early?
Yes, you can. Reverse mortgage loans do not have any prepayment penalties. You can make payments in full or partial payments if you choose to do so.
What happens if you don’t pay back a reverse mortgage?
A reverse mortgage loan is only due and payable when there are no original borrowers or eligible spouses living in the home or if you fail to pay your property charges in a timely manner. If the balance is not paid off through either a sale, refinance, or other acceptable funds the loan would go into foreclosure just like any other loan, but the loan is a non-recourse loan which means that the only security the lender has is the property.
Can heirs walk away from reverse mortgage?
The heir(s) to a home with a reverse mortgage loan can in fact walk away from a property if that is their wish. A reverse mortgage loan is a “non-recourse” loan, and you can never owe more than the value of the home. If an heir inherits a home where the accrued balance was to be higher than the current home value, 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 try to ensure that they have the right to speak with the lender. Most lenders cannot speak 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, that they add you to 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 the home or refinance it until you own it and that may require a 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). And 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 but 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 would need to have title to the home. Otherwise, the lender can begin a foreclosure action (which does not affect you or your credit at all).
ARLO recommends these helpful resources: