Hello Arlo, My mother passed away a year ago. She had taken a reverse mortgage on her home. We later discovered that my mother had not been paying her property taxes, and her home had now been foreclosed. Will they auction the home off? And exactly where do the proceeds of the auction go? If the home sells in auction for more than the reverse mortgage amount. Then where does the rest of the money go? My mother’s home is valued at approximately $250.000. I’m not sure, but I think my mother only received approximately $40,000-$50,000. That’s $200,000 over the loan amount. Do those funds go to my mother’s estate/heirs? Thank you so much!
There are several possibilities at this point, and you may need to act quickly to protect the estate/heirs depending on where things stand. If the lender has already completed a foreclosure sale and they or some other entity now owns the property because of that sale, your actions are not as urgent, but if not, there is still time. Let me explain.
The lender will initiate foreclosure proceedings when the last original borrower on the loan passes, and no original borrowers are still living in the home. They can also initiate foreclosure proceedings if they must advance funds to pay property taxes or other property charges (i.e., homeowner’s insurance, etc.).
If the lender has already foreclosed
If the lender forecloses on a home and it goes to sale, it begins the foreclosure sale with the initial bid at the amount that is owed to the lender, which would include all money borrowed, interest, MIP owed, any financed fees, any money advanced on behalf of the borrower (taxes, etc.) and any fees that accrue which would include the costs to foreclose.
For example, if mom only borrowed $50,000 and those fees and costs plus taxes and insurance the lender advanced all total another $25,000, the starting bid at foreclosure auction would be $75,000. The lender is not allowed by law to bid again at the auction. If no one bids against the lender’s opening bid, the lender wins the auction and becomes the property owner by Sheriff’s Deed (or whatever instrument is used in the state where the property is located).
If others bid higher, the lender would be out of the auction but would first be paid from the sale proceeds before the estate (assuming the title to the property is still in Mom’s name) would receive the remaining funds over what was owed to the lender. If the next highest bidder only went as high as $100,000, then the estate would only receive $25,000.
If the home has not yet gone to foreclosure sale
If the loan is in default but has yet to go to sale, you can still step in, repay the amount owed, and retain the property. But you may need to act quickly depending on the default status. I recommend that you obtain the services of an attorney who handles such matters to see if you can get a stay in the foreclosure action and find a way to pay off the loan before the foreclosure sale.
If there is $200,000 equity in the property, there is certainly motivation to do anything in your power to halt the proceeding and pay that loan off so you can either keep the home or sell it yourself so the estate (you) can keep the equity. You would need to do something as soon as possible to change the title or begin probate anyway, but I am not sure.
An attorney will need to advise you regarding that matter. I suggest you contact the lender, give them documentation that you are the heir if you have not already done so, and tell them you wish to repay the loan and want your options. That will at least start things moving and get you a loan payoff figure.
I would not wait until after a foreclosure sale to hope that funds are still available, but if I knew there was substantial equity in the home. And the attorney will need to let you know if there are ways to slow down or stay a foreclosure sale so you have more time if needed. Consider a sale of the home yourself, which might take time to change the title and a probate action through the court.
Still, it would be worth the time and effort when considering the amount of money you describe, and the attorney can tell you if and how that could be achieved.