If I Take a Reverse Mortgage Does the Bank Own My Home?

August 30, 2021

Am I applying for both a loan and a line of credit? Where does the possibility of any cash equity affect me?

What I had been told was: This is to be a simple transferral of my home to the company, with no further mortgage payments from me for the rest of my life. Upon my passing, the bank will own my home. Am I too simple and naive in my understanding and explanation?

I remain interested and confused.

Don C.

Great question. I can only assume that the transaction to which you are referring is the HUD Home Equity Conversion Mortgage (HECM or “Heck-um”), reverse mortgage.

If this is the type of financing you have started or are considering, then it is NOT transference from you to the bank, and it absolutely is a loan.

There are a number of different ways you can choose to receive the money on the adjustable rate programs and you can also opt for a fixed rate, but under the fixed rate programs, you would have to take all available funds at one time at the initial draw.

Nothing but a LOAN against your home

The loan does accrue interest on the unpaid balance, and the loan operates in the reverse of a standard or forward loan in that your balance grows over time (whether you are taking money out over time and accruing interest on the balance or take a lump sum draw and accrue interest on that) instead of you having to make monthly payments and your balance going down as is the case with a standard, forward mortgage.

A standard or forward mortgage is a falling debt, rising equity loan since the amount you own goes down and your equity goes up with your monthly payments.

A reverse mortgage is a rising debt, falling equity loan since you are taking money out of your home and since you make no payments, the balance goes up and your equity goes down.

But as with either loan, you always own the home and any equity in the property belongs to you or your heirs.

The reverse mortgage loan allows you to live in the home for the rest of your life without having to make any monthly payments, but, like any loan, you are still responsible for your taxes, insurance and maintenance on the property.

Non-recourse protections

The feature that protects borrowers is that this loan is a “non-recourse” loan.

In other words, if the value of the property is not adequate to repay the entire loan when you pass, your heirs can never be made to pay any additional money.

The only thing the lender or HUD can use to pay the loan back is the sale of the property and therefore, they can never attach any of your other assets or ask your heirs to repay any shortfall.

However, if the property is worth more than the loan balance, your heirs can keep the home and pay off the loan balance or they can sell the home and pay off the loan balance and keep the excess equity. The bank does not automatically get the house.

When you pass, your heirs have a right to determine the value of the property and review the amount owed on the reverse mortgage.

Remaining equity belongs to you, NOT the bank.

If there is still equity in the property, they notify the bank what their plans are for paying the loan off (refinance the loan or sale of the property) and the bank will work with them to accomplish this goal.

If however they look at the balance and property values have gone down and there is no equity, heirs can simply choose to Deed the property back to the bank as the heirs are not required to do anything and as stated previously, the bank has no other recourse for the repayment of the loan.

If you have no heirs, just like with any other loan, the bank would have to foreclose on the existing security documents and then they would sell the home to repay the obligation.

But under all these options, the bank can never “just assume” ownership without legal due process of law.

Please make no mistake about it; a reverse mortgage is a loan.

However it is a loan with safeguards built in to protect your heirs later after you pass while giving them the option of deciding whether or not it makes sense for them to keep the property, sell it themselves and keep any equity left in the home, or give it back to the loan servicer in the case of no remaining equity.

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10 Comments on this Article

Flodene P.
November 30th, 2021

Who pays the property taxes during a reverse mortgage? Can you even get a reverse mortgage when property already is scheduled for foreclosure?
Reply to Flodene
- ARLO™
  December 7th, 2021
  
  Hello Flodene,
  The borrower is still the owner and is responsible for the taxes, insurance and any other property charges (i.e., HOA dues if any).
  You would need to get a set aside for the payment of future taxes and insurance but it is still possible to get a reverse mortgage depending on your overall credit profile, the reason for the foreclosure now and only if the reverse mortgage would ensure that there would be no future issues.
  If you are looking at this situation now, you should definitely seek assistance sooner rather than later so that a lender has sufficient time to assess your situation and then get the loan together if you can be approved before the sale date.
  Reply to ARLO
Christina L.
November 28th, 2021

My parents were divorced but lived together in a home that was solely owned by my mother. She was diagnosed with dementia about 8 years ago. When my father died in 2019 he had somehow taken out a reverse mortgage on her house. He did not have any type of power of attorney over my mother or her estate. I was wondering if the company he used did this all fraudulently or if it would even be valid? I know you're not going to advise me legally, however what is or opinion? Please and thank you.
Reply to Christina
- ARLO™
  December 7th, 2021
  
  Hello Christina,
  
  The lender must get HUD to insure the loan and must also obtain title insurance on the loan. HUD would not insure the mortgage and the title company would not insure the title unless the loan had been completed in accordance with HUD rules and state laws.
  I would be extremely surprised if a lender would do anything to falsify the ownership or his ability to complete the loan transaction to close one loan considering the liability they would have legally and to HUD. I think it is more probable that your father had some form of legal right to encumber the property granted to him from your mother and the question is really how that was conveyed to him and when.
  
  I would suggest that you pull the legal documents on the property and see when the title was granted to your father and how (the legal documents that are recorded would include the grant deeds and mortgages/deeds of trust that will show the chain of title and liens). Was dad placed on title before or after mom was diagnosed with dementia? If it was after mom was diagnosed with dementia, how was it done?
  You may need to get an attorney involved to determine if the grant was legal and what your options would be at this time. If it was changed while mom still retained all her faculties, that would answer your questions as mom can add whoever she chooses to title and if she did so while of sound mind, there is no mystery other than possibly why she did it but that is something you may never know.
  Reply to ARLO
Kyle K.
November 30th, 2020

My father and mother owned their home. Before my father died in Jan 2019, he took out a reverse mortgage. My mother is still living. She is 90 years old. I am her caregiver. She has taken money from the reverse mortgage lender. I am assuming everything she could take. When something happens to her am I able to purchase my parents' home? I know the house is worth more than what the lender has given her. And how would I go about doing that?
Reply to Kyle
- ARLO™
  November 30th, 2020
  
  Hello Kyle,
  
  You would not need to "purchase the home", your mother owns it. You should make sure she has a trust or other documentation now that leave you the property when she passes so that the title of the home will go to you at that time.
  There will probably need to be a probate of the estate, but if your mom has a trust or will, that is much easier so I would definitely advise you to seek the assistance of an estate attorney now.
  I would also advise you to have mom sign a letter to the lender now that authorizes them to speak to you and you to them on all matters relating to the loan.
  That way, they do not need to wait for a court to declare you the owner of the property before they can communicate with you about the loan.
  
  Since your mom already owns the home and her estate will still own it after she passes, it is up to her who gets the property at that time. The lender cannot sell it to you because they do not own it.
  The loan will be due and payable at that time, so you have to make a choice. You need to either pay the loan off with funds available to you, refinance the loan with a new loan in your name after you have the title, or sell the home.
  For the new loan, you would need to wait for the title to be in your name, no lender will lend to you on a home that is not in your name.
  That's why getting your affairs in order with the trust or will are important now so that when the time comes, you can move swiftly to put the title into your name and complete the loan or sell the property.
  If you contact a good estate attorney, they will be able to guide you through all the steps required now to ensure a smooth and timely transition at that time.
  Reply to ARLO
Angee
October 27th, 2020

My Aunt passed away and she had a reverse mortgage. She did not have a will. However, the courts made me and my brothers administrator over the property. Does this mean we can sale the property or is the property owned by the bank now?
Reply to Angee
- ARLO™
  October 27th, 2020
  
  Hello Angee,
  
  Your aunt or her estate own the home, not the bank.
  A reverse mortgage is a loan and just like any other loan, it secures the lender's interest in the property with a Deed of Trust or Mortgage (depending on the state in which the property is located) and if the loan is not repaid or if the borrower defaults on the loan, the lender can foreclose on the loan.
  At that time, the property would be sold at Trustee's sale and the highest bidder at the sale would then own the property (which would be the lender if no one bids against the lender). The lender starts the bidding at the amount owed on the loan and then cannot bid again in the auction.
  
  At this point, it sounds like you have not been notified of any foreclosure actions, so the property is still owned by your aunt's estate.
  You now have decisions to make.
  You can sell the home, keep the home, or just let the bank take it back if you do not want to do either.
  My suggestion is that you review the latest reverse mortgage statement and compare the amount owed to the most probable selling price as reported by a local real estate professional to decide.
  If there is equity in the property and the family does not want to keep the home, I would suggest that you proceed with your plans to sell as quickly as possible.
  The longer you wait to sell the home, the more interest accrues on the reverse mortgage and the more likely it will become that the lender will begin a foreclosure resulting in additional costs at some point.
  If you are clear now with whatever court procedures needed to be performed (possibly probate, etc.), I would suggest that you proceed with the sale as soon as possible if that is your plan.
  Reply to ARLO
Tiffany belizaire
March 5th, 2019

I need to know what reverse mortgage company owns my house
Reply to Tiffany
- ARLO™
  March 5th, 2019
  
  Hi Tiffany,
  
  I am afraid I do not understand. The reverse mortgage lender does not own your home, you do. You should be getting a monthly statement from your lender which details the amount you owe, any activity that occurred during that month and contact information for your lender. The only time a lender would own your home is if you defaulted on the loan and the lender had gone through a complete foreclosure process. If that was the case, you would also have received numerous notices at various stages required by law informing you who to contact long before the foreclosure was completed. If you have not received any of those notices, you still own the property and the lender can be reached by calling the number on your monthly statement.
  Reply to ARLO

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If I Take a Reverse Mortgage Does the Bank Own My Home?

Nothing but a LOAN against your home

Non-recourse protections

Remaining equity belongs to you, NOT the bank.

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