We received a notice that our reverse mortgage loan is being assigned to HUD, along with the name of the handling company. This company has numerous complaints, especially about foreclosing before heirs can settle the home. I am the beneficiary of my mom’s house, which is in a trust and a will to avoid probate. What recourse do I have if they refuse to work with me and foreclose despite my efforts? The complaints mention lies, runarounds, no payoff amounts, and unreturned calls. This is terrifying, as there’s enough equity to sell the house and pay off the loan. I don’t want to hire an attorney if I’m following all requirements and they still refuse to cooperate. Who can I complain to, and why is this company still in business? My mother, who has the reverse mortgage, is still alive but may not have much longer. Why do they make settling the loan so difficult? -Thank you, Laura K.

Why Lenders Assign Reverse Mortgages to HUD

Let’s start with some background.

Reverse mortgages are typically assigned to HUD when the loan amount is very high compared to the original value or maximum claim amount. The HUD manual mentions other reasons for assignment, but this is the most common one.

Many homes that reach this point have little to no equity left because borrowers have used all the funds available to them, and the interest has accrued on the loan. This is the purpose of a reverse mortgage: it allows borrowers to live in the property without making payments.

If borrowers can afford to make monthly payments to keep equity in the property, they can do so with a reverse mortgage. However, most borrowers choose a reverse mortgage to live in their home without making payments.

Once the borrowers no longer live in the home, HUD’s servicer will move quickly toward foreclosure to minimize losses if it believes the heirs are not actively working to pay off the loan.

Timing of Reverse Mortgage Assignments to HUD

Most reverse mortgages are assigned to HUD when there is little equity left in the property. The longer they wait, the more losses they will incur. Ideally, HUD prefers that heirs pay off the loans, but this is not common when there is little equity.

HUD will contact an appraiser to assess the property’s value. If there is no equity and no one has transferred the title from the deceased borrowers, it is clear that no one is making an effort to repay the loan promptly.

Reverse mortgage lenders and servicers have been sued for releasing information to unauthorized individuals. They can only release information if they have written consent from the borrower, a court order, or a trust with a certified successor trustee.

If someone contacts them without proper authorization, they cannot release any information. This is not the lender or HUD being difficult; it is the law and a result of previous lawsuits.

To avoid issues, make sure everything is in order ahead of time. I have overseen a few reverse mortgage payoffs (including settling my own mother’s loan), and they went smoothly. Here’s what you need to do…

Setting Up Authority with the Servicer

Ensure you have the authority to speak with the lender on behalf of the loan. This can be done now by having your parents sign an authorization form, allowing the lender or servicer to communicate with the heirs they designate. With this authorization in place, the lender can discuss all loan-related matters with the designated heirs.

This applies to all heirs and must be done in advance. It’s too late to have Mom and Dad sign an authorization after they pass away or become incapacitated.

Ensuring the Trust Is in Order

If your mom has a family trust, speak to your estate attorney now and devise a plan to complete the certification of the trust as soon as possible after your mom passes. If your mom is incapacitated, the trust may contain language allowing you to be moved from successor trustee to trustee immediately so you do not have to wait.

Either way, when your mom passes, you will already be the new trustee, with the power to sell the property or take out a new loan without delay.

Neither HUD nor the servicer wants to foreclose. However, they cannot speak to anyone who is not authorized to communicate on behalf of the borrower or show proof of being the new owner. This process typically takes time, especially if you must go through probate or if heirs fail to take immediate steps to change the title after the borrower’s passing.

Often, heirs start contacting the lender without proper authorization, leading to frustration and negative comments you may have read. If you have taken the necessary steps to change the title and have the trust certification showing you are now the trustee, the servicer can and will work with you to sell the home.

If you are not recognized as authorized to communicate and act on the borrowers’ behalf, and the title is still in the borrowers’ names (the estate) with no moves being made to change that, the foreclosure action will eventually begin in accordance with the loan terms, especially if there is no equity left in the property to minimize losses.

I recommend taking the steps outlined above: obtain a signed authorization from your mom if she is capable, or position yourself as the trustee of the trust if you are the successor trustee. This will make dealing with the reverse mortgage much easier.

Consulting with an Attorney

As always, I strongly recommend that you speak to your estate attorney who handled the will and trust and get legal advice on any tax or other estate implications before taking any action.

If you ensure that your title and authorizations are in order in advance, you will likely find the process much easier than you have been led to believe.

Worried About a Reverse Mortgage Assignment to HUD? Get expert guidance from All Reverse Mortgage, Inc. (ARLO™) — America’s #1 Rated Lender with a 4.99/5-star rating! Call (800) 565-1722 or click here for your free quote — simple, trusted, 100% secure!

ARLO recommends these helpful resources:

• HUD Servicing Manual .PDF (4235.1 REV-1)