We received a notice from reverse mortgage that the loan is being assigned to HUD they also gave the name of company that would be handling it. I looked company up and they have horrible complaints one main one being that the heirs do everything required to settle home and this company just foreclosures the house before they can do anything about it! I am beneficiary of my mom’s house she has the house in a trust and a will, I am beneficiary we put house in trust to avoid probate.

What recourse does a person have if you do everything to settle loan and they just steal the house from you! The complaints are numerous people are lied too and get the runaround. Never get the payoff amount. Phone calls not returned. It’s scaring me to death what I may have to endure. There’s no way I’m giving up this house to them there’s plenty of equity to sell the house and pay off the loan balance with the reverse mortgage and I have been communicating with the other company now they referred me to another company.

I don’t want to hire an attorney if I’m doing everything I’m supposed to do in a required and they refuse to work with me because they want to foreclose on the home what is my recourse? Who can I complain to? who is on our side and why is this company still in business? sounds like a horror story to me.

PS. My mother who has reverse mortgage she is still alive she doesn’t have much longer I don’t think but I’m just wondering what’s going to happen now and why do they make it so difficult for people to settle the loan. Thank you! – Laura K.

Why Lenders Assign Reverse Mortgages to HUD

Let’s go over a little background first.

Reverse mortgages are typically only assigned to HUD after the loans reach a very high loan amount in relation to the original value or maximum claim amount (there are other reasons as stated in the HUD manual, but this is the most common reason for assignment).

Many of the homes that reach this point have little to no equity remaining in the property because borrowers have used all the funds available to them, and the interest accrues on the loan.  This is the purpose of the loan.

It allowed the borrowers to live in the property payment-free.  If the borrowers can afford to make monthly payments to keep equity in the property, they can with a reverse mortgage as well but most do not and that is their reason for getting the reverse mortgage in the first place, so that they can live in the home without having to make a payment.

Once the borrowers are no longer living in the home, HUD’s servicer will move quickly toward foreclosure to minimize any losses if they feel that heirs are not actively pursuing loan payoff.

Because most of the loans that are assigned to HUD are lower equity situations, the longer they wait the more of a loss they will sustain.  They would much rather have heirs pay the loans off, but they know this is not the typical outcome when there is not a lot of equity in the property.

HUD will contact an appraiser to perform an appraisal and if it is clear there is no equity in the property, they see that no one has made any attempt to change the title from the deceased borrowers, it’s pretty clear that no one is making any positive steps to repay the loan in a timely manner, if at all.

can do to prevent that.

Reverse Mortgage lenders and servicers have been sued for giving information to the wrong people without borrower consent.  They don’t know who they can release information to unless they have a written consent from the borrower, a court order or a trust that has a successor trustee who has had the trust certified.

Otherwise, if they just start working with just anyone who contacts them and claims to be the heir, they can be subject to civil penalties and lawsuits if anyone is injured as a result.

Therefore, if they receive a letter or call from someone who does not have the proper clearance to act on behalf of the borrower, they cannot release any information at all.  It’s not the lender or HUD being hard-nosed, it is the law and the result of lawsuits.

So, what you can do is make sure that all your ducks are in a row in advance.

I have overseen a few reverse mortgage payoff’s (including settling my own mother’s loan just this year) and they all went off without a hitch.  But here is what you need to do.

Setup Authority with the Servicer 

Make sure that you have the authority to speak with the lender on behalf of the loan.  This can be done now by having parents sign an authorization for the lender/servicer to speak with heirs they intend to have working on their behalf on all things relating to the loan.  If they have this authorization in advance, then the lender can talk to them.  This applies to all heirs.

It’s too late to have mom and dad sign an authorization after they pass or become incapacitated.

Is there a Trust Present? 

Next, if mom has a family trust, talk to your estate attorney now and devise a plan to have the certification of trust completed as soon as possible after mom passes.

If mom is incapacitated now, the trust probably contains language that you can be moved from successor trustee to trustee now so that you do not have to wait.  Either way, when mom passes, you will already be the new trustee with power to sell the property at that time or take out a new loan and there will be no delay.

Neither HUD nor the servicer want to foreclose.  But they cannot speak to anyone who is not authorized to speak to them on behalf of the borrower or can show proof that they are the new owner and that usually takes time if you have to go through a probate or if heirs don’t take immediate steps to change title after the borrowers pass.

Then these folks often just start trying to contact the lender and the lender can’t tell them anything and they get frustrated and post the negative comments you have read.  If you have taken the necessary steps to change the title and have the trust certification to show that you are now the trustee of the trust, the servicer can and will work with you to get the home sold.

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

I think you need to take the steps outlined above to get a signed authorization to work with the lender from mom now if she is capable or move to have yourself put into the position of Trustee of the trust if you are the successor trustee.  Now that is my advice about making the reverse mortgage easier to deal with.

Talk to an Attorney 

As always though, I strongly suggest that you speak to your estate attorney that did the will and trust and get legal advice on any tax or other estate implications before you do anything.

I think you will find that it is not anywhere near as difficult as you have been led to believe if you make sure you have your title and authorizations covered in advance.

Also See: 

Reverse Mortgage After Death: What Heirs & Family Must Know

HUD Servicing Manual .PDF (4235.1 REV-1 )