My MIL and FIL recently entered a reverse mortgage. House in good shape and worth about $150,000. I expect they will take a large distribution up front as well as withdrawal monthly amounts until they hit the max dictated by the lender. The large distribution up front coupled with fees, closing costs, mortgage insurance and interest build up means that if they continue to live in the house for even 15 years, I expect the loan balance to exceed the value of the home. Glad for the non-recourse nature of the loan, but my husband and I don’t want to touch their house after their death with a 10-foot pole. Hate the idea of being drug into any of the mess that heirs must deal with for no $ benefit. I know we can deed to the lender to avoid foreclosure, but we would like to not even be listed as an heir for the house. Hoping they can list in the will Heirs get asset A B or C, but heirs DO NOT get the house? I know you’re not an attorney but is there a common way for children to divorce themselves from the house entirely while leaving all other transfers of ownership intact? We don’t want the house, need the house and certainly don’t want to unwind our parents’ financial decisions.
I think you are concerned at this point needlessly and you don’t have to do anything. You should consult with an attorney if you are concerned but I think your fears are unfounded. Firstly, your in-laws are the ones signing on the dotted line for the mortgage, not you.
You are never, in any way whatsoever, obligated on the loan. Secondly, the loan has only the property for security.
Therefore, it seems a waste to file anything now above and beyond a trust or will specifically excluding what heirs get because the lender can never seek repayment from any other asset and there is no liability to other assets or heirs.
Reverse mortgages are Non-Recourse
Regardless of what else the borrowers have or do not have, the only asset the lender can use to repay the obligation is the house and that is in writing in the reverse mortgage documents.
Finally, it’s a bit early to start including or excluding anything at this point about the home. We all hope our parents live a long, fruitful, happy life but tomorrow is promised to no one. In business, we call it the bus scenario.
If your in-laws step off a curb tomorrow and are hit by a bus, they would not have a chance to use all the equity in the home and even though you don’t want the house, why would you seek to put any type of provision in place now that would prevent you and any other heirs from selling the home if you don’t want it and retaining the equity?
Even if it was used for their expenses, it just might come in handy. If your in-laws do out-live their equity in the home and you are their heirs, nothing requires you to take title to the home after they pass or to make any effort to retire the debt.
Choosing to walk away
You don’t even have to participate in a Deed in Lieu of Foreclosure (which you can’t even do if you don’t have title to the property). You can choose to simply walk away from the home and let the lender take the property through a foreclosure action.
If this happens, the lender forecloses on the original loan which is filed based on the documents the borrowers executed (your in-laws, not the heirs) and even then, because they are deceased it is not reported to credit because it would not matter even if it was.
There are no credit ramifications so therefore, it would be a moot point to report to credit and heirs are never responsible for the credit of their parents and other family members anyway. In other words, a foreclosure has no effect on the heirs whatsoever if they so choose so there is upside to bailing on all possible heirship now before you even know what that entails.
You may be right, there may be no dollar benefit and then you can choose to ignore the situation later if that is your decision.
It may be that the time comes sooner than everyone hopes and there may be a huge upside to selling the property or another family member may benefit by that time by receiving the home. Under these scenarios, it would be extremely short-sighted to eliminate options now, you just never know.
Foreclosure & Heir FAQs
Q.
How does a reverse mortgage foreclosure work?
A reverse mortgage foreclosure is no different than the foreclosure of any other loan. The lender must follow the law for foreclosures in the area in which the property is located and that location will also determine whether the security instrument is a Deed of Trust or a Mortgage. The lender will follow the same procedures they would follow for any other loan. That would include usually a preliminary notice followed by a prescribed period wherein, if possible, any default could be cured. That time is followed by an advertising period during which the lender must advertise the foreclosure sale and the loan may still be paid in full during the advertising period but not cured and kept active. Most foreclosures are handled outside of court proceedings and ultimately all foreclosures result in a public auction of the property with the initial bid being the lenders for the amount owed to the lender.
Q.
How long do heirs have to pay off a reverse mortgage?
There is a practical answer for this question and that is until the lender takes the home through a foreclosure action. Even if the lender were to start the foreclosure the day they determined that the borrower had permanently left the home (i.e. passed), they could not complete such an action for 6 months in most locations and there are several things the lender must do before they can start a foreclosure. So, the actual time from the passing of the last borrower until the time the lender determines the loan must be repaid and the time, they can finally act which is the true time the heirs actually have to repay the loan, can be anywhere from 6 months at the absolute quickest to over 2 years (and in some cases the lenders are not made aware of the passing of the borrower(s) and it can take longer for the servicer to notify the heirs that the loan is now due and payable). However, borrowers should talk to their heirs and have a plan in place to be able to begin the process as soon as all original borrower leave the home (whether as a result of passing or to move to assisted living, etc.). The sooner the loan is repaid, the sooner interest ceases to accrue and there is no worry. If a plan is in place ahead of time, heirs are not left to scramble at a time of grief when they have just lost loved ones. There should be a mechanism in place to let the lender know who has authorization to speak with them on behalf of the loan (this can be done in advance and it is easier to do it while all borrowers have full faculties and are able to direct their affairs). Estate planning is a huge help so that families know what the owners’ wishes are and can proceed immediately (wills, estates, trusts set up in advance can resolve issues and allow heirs to move forward without delays in many instances, you should consult with your family attorneys for direction).
Q.
How long does it take for a reverse mortgage to foreclose?
A reverse mortgage foreclosure is no different than the foreclosure of any other loan. The lender must follow the law for foreclosures in the area in which the property is located and that location will also determine whether the security instrument is a Deed of Trust or a Mortgage. The lender will follow the same procedures they would follow for any other loan. The actual foreclosure process takes about 5 – 6 months from the time the lender files the first notice of default unless they are required to go through a court foreclosure which is rare. In that case, the timeframe would be dependent on the court’s schedule.
Q.
Are heirs responsible for a reverse mortgage?
Heirs have certain rights under the reverse mortgage if they wish to keep the home but heirs are never responsible under a reverse mortgage. They always have the option to walk away and owe nothing on the loan with no adverse effect on their credit whatsoever. After all, they did not sign any agreement to repay the loan so they cannot be held responsible for it. The reverse mortgage is a non-recourse loan which means that the only recourse or security the lender has is the property itself. They cannot look to any other assets of the borrowers for repayment of the loan and certainly not to the heirs of the reverse mortgage borrower to request repayment of the debt.
Q.
Can a family member take over a reverse mortgage?
Reverse mortgages are not assumable and never were intended to be transferrable or multi-generational loans. When the original borrower(s) of the reverse mortgage no longer live in the property as their primary residence, the loan becomes due and payable. Family members can refinance the loan with another loan if they wish, and if they qualify, they can even get a new reverse mortgage in their own name but they cannot just take over or live in the home under the terms of the original reverse mortgage.
About the Author, Michael G. Branson | Mike@allreverse.com
Michael G. Branson CEO, All Reverse Mortgage, Inc. and moderator
of ARLO™ has 40 years of experience in the mortgage banking industry. He has devoted the past 18 years to reverse mortgages
exclusively.
12 Comments on this Article
Lydia H. July 6th, 2022
Because of information you have provided answering some questions I have had about property that I chose to enter into reverse mortgage agreement, am relieved of anxiety and stress as it relates to some decisions I needed to make. Foreclosure is an option (without out recourse). Thank you so much!
Hi Lydia, You are very welcome. We always recommend that you talk to your heirs so they know what is happening and know what they need to do when the time comes if they want to keep or sell the home and it's not a bad idea to include your estate planner/attorney if you have one. But your heirs never signed any agreement to repay anything and the loan is non-recourse so the lender cannot look to them or any other assets of the estate for repayment of the loan. Your heirs should know their options though in case they do want to keep the home or sell it if there is still equity available that they wish to keep with a sale of the property.
If a person walks away from a reverse mortgage because they cannot sell the house for the same amount (or more) due on loan, the house goes into foreclosure, lender gets house, can the lender come after the person who walked away for the rest of the amount due? Can the lender tap wages or Medicare?
Hello Danielle,The reverse mortgage is a non-recourse loan. The lender has no other security other than the property. They cannot look to other assets, heirs, or the borrower's estate for repayment.
My mom has a reverse mortgage (since 2004). I have lived with her since 2008. If she should pass before me (I have other siblings who live in their own homes), and I have no intent to purchase the property, how long can I remain in the home after she passes?
Hello Faye, It's hard to give you an exact timeframe. Heirs who are selling the home and keeping equity sometimes have the home for a year before everything goes through and sometimes it happens much more quickly. Those who have no interest in keeping the home or selling it sometimes have liens or other issues that really slow down the process of the lender taking title to the property. I would say that if you require the lender to foreclose, it will take at least 6 months for them to determine that the borrower has passed, do all the inspections they need to do, contact you to determine what you intend to do and then foreclose if they feel they need to. It is probably closer to 8 -12 months by the time everything is finished but there is no set time table and a lot will depend on you and your plans, the servicer and how efficient they are and the ability of the servicer to order the necessary services (appraisal, etc.).
My mother in law home is in reverse mortgage we the heirs were just notified of a pending foreclosure. The mortgage repayment is 235 thousand can we sell the property for 325.000. Essentially repaying the owed loan and keeping the rest in the state of Florida
Hello, Absolutely. The home belongs to the family so the equity is still yours and you can do anything you like. Just don't wait too long if they are already heading to foreclosure. You may have to worry still about probate or take other steps to obtain the title in order to sell the home so I would suggest you contact an estate attorney to determine the steps you need to take as soon as possible.
My father passed away and his home had a reverse mortgage. I had 30 days to remove 45yrs of my parents life from said home. Also my dad had a living trust and added his home to his trust. I'm his only child and on Disability. The mortgage company received what was owed to them leaving me with about $15000 dollars to find myself a place to live. I bought a double wide trailer and paid cash. All of this happened a little over 30 days after he died. Do I have to pay taxes on $ from the sale of his house?
Good Morning Tracie, I am confused. Typically, the reverse mortgage company is notified of the passing of the borrower in various ways but that usually takes several months at the earliest and sometimes much longer. From there, the lender must follow certain procedures in accordance with HUD requirements but even more so than that, they must follow state and local laws regarding giving notices before they can foreclose on a property. The process includes reaching out to heirs to determine what their intention is with respect to the property, working with them to allow for repayment of the loan or sale of the property and if foreclosure is the ultimate action, there are a number of contacts and notices required by law. This process under the law, usually cannot occur faster than 150 -180 days from the time they actually start the foreclosure and that since that only occurs after they contact heirs of the borrower to determine whether or not they wish to pay off the loan, are going to sell the property or what, it is not uncommon for this to ultimately be 9 months to a year after the heirs are initially contacted by the lender. The foreclosure should only begin if the lender cannot determine that the borrower's heirs are making any progress toward repayment of the loan or sale of the property and that certainly should not happen within 30 days of your contact by the lender. If you are saying that you never received any notices and that the lender gave you only a 30 day notice before the property was taken in a foreclosure action, I would suggest that you contact an attorney because that is not legal under any state foreclosure law of which I am aware. I would strongly suggest that you consult with a licensed attorney because while I cannot give you legal or accounting advice, I can advise you to seek a licensed professional who can.
Hi, my parents are both handicap due to strokes and had to move in with me. They have a reversed mortgage that's more than what the property is worth now. What happens when bank forecloses on them. Do they go after their social security?
Hello Jordan, The reverse mortgage is a non-recourse loan. This means the only thing the lender can take is the home itself, nothing else. I would recommend that you contact them and try to work on a Deed in Lieu of Foreclosure since they are already out.
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