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.

 

Helping the Elderly

Hello Rebecca,

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.  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.  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.

Also See: 

Steps for Heirs to Repay Reverse Mortgage After Death