My mom procured a reverse mortgage when property values were high. She can no longer live alone in the home and has vacated it; we cannot sell it because the home has devalued in accordance with the failed economy. The family is attempting to process, through an attorney, a Deed in Lieu of Foreclosure, but the loan has been transferred to 3 different loan companies since mom vacated the property 5 months ago, and they have ignored the attorney’s letters and continue to send mailings telling my mom that they will continue to service her “loan” as always.

How Does a Reverse Mortgage Deed in Lieu of Foreclosure Work?

The reverse mortgage is a non-recourse loan.

In the case of a reverse mortgage, several options are available if your mother decides to vacate the property. Once she notifies the loan servicer of her departure, she can choose how to proceed:

  1. Selling the Home: She has the option to sell the property. If the home’s equity is depleted and neither you nor any other heirs are inclined to keep it, your mother or the heirs can sell the home for 95% of its current market value. This is a unique feature of reverse mortgages, allowing for a sale at a reduced price, which can be particularly beneficial in a market downturn.
  2. Lender Taking Ownership: If selling the home isn’t viable or there is no interest in retaining it, the lender can assume ownership. This can be executed through a Deed in Lieu of Foreclosure or through foreclosure, though a Deed in Lieu is generally more advantageous for the lender.

Some borrowers can find their loan balance exceeding their home’s current market value. However, this situation does not inherently negate the benefits of a reverse mortgage. Borrowers in this scenario have received funds exceeding their home’s worth and had the opportunity to live in their property for years without mortgage payments.

Under the reverse mortgage agreement, borrowers are not obligated to pay beyond the home’s current market value when the loan amount exceeds the home’s value.

The insurance paid to HUD provides a safety net, allowing homeowners to receive funds beyond the value of their home, avoid interest payments, and ensure there are no financial claims against them or their heirs. This aspect of reverse mortgages offers significant financial relief, allowing for a mortgage-free living experience.

Stability and Protection

Borrowers with conventional mortgages faced significant challenges during the economic downturn. Many grappled with loan interest payments exceeding their homes’ current values, leading to dire circumstances. As property values plummeted, these homeowners often found themselves trapped in a cycle of payments they could no longer afford, eventually losing their homes and financial security.

In contrast, your mother’s situation with her reverse mortgage highlights its distinct advantages. A key benefit of her reverse mortgage was the assurance of a secure home for as long as she desired, without the burden of monthly mortgage payments. Her only responsibilities were the upkeep of taxes and insurance. This arrangement starkly contrasts with the experiences of those with standard mortgages, who often faced the loss of their homes and financial instability while struggling to keep up with mortgage payments.

For the past nine years, your mother has enjoyed the peace of living in her home without making any loan payments. This isn’t to downplay her challenges but to acknowledge the protections her reverse mortgage provides. The economic collapse and the subsequent decline in property values were widespread issues impacting homeowners. However, it’s worth considering how fortunate your mother was to have a reverse mortgage during this period, providing her with stability and protection that a conventional mortgage might not have offered.

Regarding the current situation, your mother can be assured of a stress-free transition. Another benefit of the reverse mortgage is its flexibility in moving out. Once she leaves and her belongings are moved, if the family decides not to retain the home, inform the loan servicer of her departure. The servicer will then initiate the process of reclaiming the property, which can be done without legal assistance. This process is straightforward and designed to be as hassle-free as possible, ensuring your mother’s and your family’s peace of mind.

Top FAQs

Q.

What is a deed in lieu of foreclosure in a reverse mortgage?

A Deed in Lieu of Foreclosure is when the property owner signs the property’s title over to the lender so that the lender is not required to foreclose on their security interest (their Deed of Trust) to obtain title to the property. The borrower or the borrower’s heir who has the authority to grant title can Deed the title to the lender if they do not wish to keep the home and have no desire to try to sell the home.
Q.

Why is a deed in lieu of better than foreclosure?

Borrowers or heirs sometimes choose to sign a Deed to the lender in lieu of foreclosure to simplify and expedite the process. With a reverse mortgage, there is never any recourse in addition to the property itself (meaning the lender cannot look to any other assets of the borrower or the borrower’s heirs for repayment of the loan). The only security the lender holds is the property. Therefore, borrowers and their heirs can often significantly reduce the amount of time and effort they need to expend if they participate in a Deed in Lieu of foreclosure, which allows them to transfer title to the lender and step away from a property they have no intention of trying to keep or sell. If the borrower or their heir wishes to keep or sell the home, they would not be interested in a Deed in Lieu of Foreclosure and would certainly not wish to be caught up in a foreclosure process.
Q.

What is the most significant disadvantage of a lender of a deed in lieu of foreclosure?

The lender agrees to take the property “As Is” by accepting a Deed in Lieu of Foreclosure. Therefore, the lender will require that the home be free of all other encumbrances and liens and empty of all personal property. The home must be “broom clean” and ready for the lender to take possession. Broom clean does not mean that the home must be scoured and spotless, but it must have all personal items removed and the floors swept of any debris.
Q.

Can a lender foreclose on a reverse mortgage?

A reverse mortgage is like any other loan in that there are requirements of the loan that, if not met, could cause the borrower to be declared in default, and the lender can foreclose if the default is not cured. Those defaults include if the borrower does not live in the home as their primary residence (which could include moving to a new location or death), not paying the property taxes, insurance, or other property charges when due, or not reasonably maintaining the home. Borrowers must occupy the property for more than half the year for it to qualify as their principal residence, and any vacancies of 60 days or more (such as extended vacations) should be reported to the lender or servicer of the loan so that the lender can be sure that the home is adequately secure during extended absences.
Q.

How long does a foreclosure on a reverse mortgage take?

Foreclosures can be as quick as 5 and a half months or drag on to more than 2 years in some instances. It all depends on where the property is located, what the foreclosure laws are in the area, the time required for services that HUD and the lender require for the foreclosure process (which can include an appraisal, title, and other third-party services), and any legal motions filed. Typically, foreclosures do not begin immediately, and the timeline doesn’t start until the first notice of default is filed in the county where the property is located. The bottom line is that t a reverse mortgage will take just about as long as a forward or traditional loan once the Notice of Default has been filed. Borrowers who wish to resolve their issues with a reverse mortgage lender should always attempt to do so before this notice is filed rather than wait until the foreclosure begins. The clock is ticking (as with any foreclosure action).

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