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.
The reverse mortgage is a non-recourse loan.
In the case of a reverse mortgage, a non-recourse loan, there are several options available if your mother decides to vacate the property. Once she notifies the loan servicer of her departure, she can choose how to proceed:
- 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 opt to 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.
- Lender Taking Ownership: If selling the home isn’t a viable option or if there’s 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 interest payments on loans far 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 their 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 the challenges she’s faced but to acknowledge the protections her reverse mortgage provides. The economic collapse and the subsequent decline in property values were widespread issues, impacting homeowners across the board. However, it’s worth considering how fortunate it was that your mother had 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 the flexibility it offers in terms of moving out. Once she decides to leave 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.
What is a deed in lieu of foreclosure in a reverse mortgage?
Why is a deed in lieu of better than foreclosure?
What is the biggest disadvantage of a lender of a deed in lieu of foreclosure?
Can a lender foreclose on a reverse mortgage?
How long does a foreclosure on a reverse mortgage take?
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