How to Get Out or Payoff a Reverse Mortgage

October 10, 2023

Margaret has sent the following question on our blog:

I have a reverse mortgage, and I’m having problems with it. Was it legal to get a reverse mortgage without my lawyer explaining the situation? I never knew the pros and cons of a reverse mortgage. I think it’s a legal way to swindle homeowners out of their homes. How can I get out of the reverse mortgage?

I am sorry if you have regrets now. You can get out of the reverse mortgage without penalty by refinancing into a traditional loan, paying off with other funds, or simply selling your home.

If you don’t like the balance rising, repay each month towards the interest charges and protect your equity position.

You’re in the driver’s seat!

REVERSE MORTGAGES ARE HIGHLY REGULATED

Furthermore, I’m afraid I have to disagree with such a broad and defamatory statement as this when the resources are so readily available. I wonder why you feel you were denied access to your lawyer or any opportunity to learn the pros and cons of a reverse mortgage.

The lender must allow you to pick your HUD-approved counselor, and you must attend a HUD-approved counseling course. The counselor must spend at least 45 minutes to an hour with you, and I have had borrowers who said their session lasted over 4 hours with all the questions they had.

In short, the number of questions and the time spent is limited by your asking, which must happen before you can even start the loan process. Only after completing this counseling course can you proceed with the loan.

Next, you apply, and your processing takes a good 30 – 45 days, during which you are free to take your application package to anyone you choose for advice.

I cannot defend or chastise your originator because I do not know who that was. Still, we encourage borrowers to get advice from family and any legal or accounting professionals they choose.

Finally, when you receive your loan documents, you have another 3-day right to rescind the transaction with no costs even after you sign. This period does not include the day you sign, Sundays, or Holidays, so your 3-day right of rescission turns into a minimum of 4 days and often 5 days.

So, you have yet another opportunity to seek assistance from anyone you choose during this time with your actual loan documents.

WERE YOU DENIED THESE OPPORTUNITIES?

Even if you didn’t make a single phone call or visit a single attorney during any of this time, if you do just an internet search on your own words, “pros and cons of a reverse mortgage,” the term auto-fills in the search bar meaning it is a popular phrase—more than 200 URLs of available results from attorneys, lenders, HUD, AARP, etc.

The last thing any lender wants to do is to “swindle you out of your home.”

And you had ample time to seek your attorney to assist you in deciding if you felt you were incapable of doing so. If you feel that you made the wrong decision, I can understand that; we have all had buyer’s remorse at one time or another.

Many borrowers occasionally ran into bad originators or lenders who may not have been the best advocates for the borrowers in handling the loans.

But I’m afraid I have to disagree with any characterization that seeks to paint the reverse mortgage process as one that doesn’t allow borrowers to have their advisors, legal or otherwise, review the transaction or as one that is solely trying to swindle homeowners out of their homes.

I do not know what state you live in, but many states also have cooling-off periods designed to give borrowers additional time to consider the transaction at the beginning of the loan.

Here in California, lenders cannot proceed with the loan for 7 days after the counseling to give borrowers even more time to consider the loan. Include your trusted financial or legal advisor if you need clarification on contract terms or ramifications.

The loan process is a lengthy one. There is no reason whatsoever not to make sure you understand everything in advance instead of experiencing remorse later.

Top FAQs

How does someone get out of a reverse mortgage?

When someone has a reverse mortgage on their home, there are several ways to “get out” of it. A reverse mortgage loan never has a prepayment penalty, so that you can pay off the reverse mortgage anytime. The most common methods would be to refinance the loan to a traditional loan or sell the property to pay off the loan if the homeowner wants to relocate to a new home.

Can I walk away from a reverse mortgage?

Yes, you can walk away from a reverse mortgage. A reverse mortgage is a non-recourse loan, and the sole collateral for the loan is the property. If you walk away from the loan and property, the home would be subject to foreclosure, but you can never owe more than the property’s value.

Can I negotiate a reverse mortgage payoff?

You cannot negotiate a reverse mortgage payoff. However, an heir to a property with a reverse mortgage can pay back 95% of the home value at that time if the balance on the mortgage were to exceed the home value if they wanted to keep the property.

Why do people say reverse mortgages are bad?

People say reverse mortgages are bad for a couple of reasons. In our experience, the most common reasons are because the loan is a bad fit for their circumstances or because they have received bad information. The reverse mortgage is not for everyone, and there are some people that a reverse mortgage would be a bad fit. For example, suppose you are planning on relocating out of the home. In that case, the reverse mortgage is not likely a good fit for you on that property. There is a lot of wrong information about reverse mortgages. Many still need to remember the first iterations of reverse mortgages from private banks before 1988 when the Home Equity Conversion Mortgage (HECM) became a government-insured program. The early versions of reverse mortgages were, in fact, bad loans and not all that advantageous to the homeowner.

Do you have the right to rescind a reverse mortgage?

You can rescind a reverse mortgage loan if it is a loan application on your existing home. Federal law requires that all homeowners be given a 3-day right of rescission after signing loan documents at closing before the loan is eligible for funding. The exception to this is for a purchase transaction. All purchase loan transactions, including reverse mortgages, do not have a right of rescission period.

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29 Comments on this Article

Rosario L.
October 12th, 2023

Hi ARLO,

My father has a reverse mortgage and is selling the home to me. I received the current payoff amount from the lender and I am submitting the information to the servicing side and just waiting now. Can you please let me know if there is anything else I am missing during this process? Thank you, & God Bless!
Reply to Rosario
- ARLO™
  October 12th, 2023
  
  Hello Rosario,
  Your dad can sell the home any time he wishes. Just be sure he is available to sign the Demand Request from the closing agent so that it is not delayed, but otherwise, the closing on the purchase for you will work the same as with any other transaction. Your closing agent (probably a title company, escrow company, or attorney) will send a Beneficiary's Demand request to the lender to determine the amount owed. Make sure they have sent payoff Demand requests to reverse mortgage lenders in the past and that they include the borrowers' signatures so that the lender knows that the borrower has authorized the release of the information. Then everything should be smooth sailing!
  Reply to ARLO
Susan
September 24th, 2023

Hello Arlo,

In 2022, I walked away from my mom's reverse mortgage. We sent the death certificate to Novad, and there was a verbal agreement about foreclosure. However, a year has passed, and the deed is still in her name, delaying probate. Was I supposed to send any additional paperwork to Novad besides the death certificate? I don't have any written agreement and haven't signed any documents. Am I liable for anything during the foreclosure process? Thank you.
Reply to Susan
- ARLO™
  September 24th, 2023
  
  Hello Susan,
  
  I don't know if there is anything with which you need to be concerned because I don't know the estate's status, etc. I don't know if there would ever be a time that you need to be concerned because you are not the owner in any event, but I can't tell you that for sure, and I don't know if there are other assets that could be at risk. This is where it pays off to spend a little time with a knowledgeable attorney. If you are concerned about other issues, you should contact an estate attorney to determine the effect of the unresolved probate, etc.
  My concern would be if mom's estate still had assets, and something happened to someone (i.e., they entered the property and were injured), is the property still insured, etc., but I honestly don't even know if that might be an issue. I am not an attorney and cannot advise you, so it would be wise to check. I know I would.
  Reply to ARLO
  - ARLO™
    September 24th, 2023
    
    Hello Susan,
    
    I don't know if there is anything with which you need to be concerned because I don't know the estate's status, etc. I don't know if there would ever be a time that you need to be concerned because you are not the owner in any event, but I can't tell you that for sure, and I don't know if there are other assets that could be at risk. This is where it pays off to spend a little time with a knowledgeable attorney. If you are concerned about other issues, you should contact an estate attorney to determine the effect of the unresolved probate, etc. My concern would be if mom's estate still had assets, and something happened to someone (i.e., they entered the property and were injured), is the property still insured, etc., but I honestly don't even know if that might be an issue. I am not an attorney and cannot advise you, so it would be wise to check. I know I would.
    Reply to ARLO
Carolyn
May 9th, 2020

Can I sell my upside down reverse mortgage for 95% of appraised value? Can I sell it to family members? Thank you.
Reply to Carolyn
- ARLO™
  May 11th, 2020
  
  Hello Carolyn,
  
  HUD promises that you or your family will never have to pay back more than the home is worth to repay the mortgage if you should pass or be required to move to assisted living etc. and the mortgage balance is higher than the property it worth.
  That does not include selling the home at your discretion if the home is upside down -on a bonafide third-party sale or to family members. The idea behind this is that the borrower will have a place to live for life without a payment and the borrower, their estate or their heirs will never be required to pay more than the property is worth at the end of the transaction.
  The intent is that if when the time comes that a borrower is forced by health or death to leave a home, the value of the home will not repay the obligation, the borrower, the estate and/or the heirs have no other recourse.
  And HUD decided to allow borrower's heirs to repay the loan at the amount owed or 95% of the current market value when borrowers pass because they realize that if they have to take the home and resell it, they will not recoup more than this amount after costs anyway so it is a good way to allow heirs to keep property in the family.
  
  It is not, and never was, intended for borrowers and their heirs to be able to terminate loans at their discretion though and lock in losses to HUD.
  Markets rise and fall and many of the properties that were below water on the values in 2012 have appreciated again since then and if HUD had allowed borrowers to sell to family members locking in losses rather than allowing the values to rise again, their losses during that time would have been even greater than they were and they were substantial.
  If you decide to sell your home voluntarily and it results in a loss on your HUD reverse mortgage, HUD would look at the sale closely and may not approve a short sale and I would doubt they approve any voluntary sale to a family member that represented a loss to the insurance fund.
  
  It is still a non-recourse loan and if you feel you can no longer live in the property, I encourage you to contact your servicer to discuss options with them.
  Any time a sale for less than the amount owed ("short-sale") is desired, it takes the approval from the lender anyway so you really need to speak with them to discuss your options in any event.
  Reply to ARLO
Gaylon V.
November 27th, 2019

We have a reverse mortgage and can't afford next year's taxes and insurance (due feb 2020)also have contracted cancer and must move into an apartment with full maintenance. How do I walk away from my reverse mortgage?
Reply to Gaylon
- ARLO™
  November 27th, 2019
  
  Hello Gaylon,
  
  Contact your servicer and tell them of your circumstances and that you wish to give them a Deed in Lieu of Foreclosure. Tell them that you must leave the property and they will walk you through everything you need to know. I wish you the best.
  Reply to ARLO
Jennifer
October 12th, 2019

My mother has a Reverse Mortgage plus a lien. When she passes who is responsible to pay the lien? She has very little in real property, and the market value on the house is low. Since the amount owed on the reverse mortgage is about what the property is worth, we are looking at letting the bank take it back.
Reply to Jennifer
- ARLO™
  October 12th, 2019
  
  Hello Jennifer,
  
  I'm sorry but I cannot answer this for you. You really need to contact an estate attorney in the area where the property is located. Different states have different laws regarding liens and creditor's and borrower's rights and this is a legal question, not one for the reverse mortgage lender. You should speak to the attorney to determine if the estate needs to do anything else to protect any other assets.
  Reply to ARLO
Lisa
August 25th, 2019

If my parents' reverse mortgage is now in the red by $1,100, is there any way that we could put my name on the house, so that I could keep it after they have died? Would I pay off the negative amount and begin making payments? Would I need to qualify for a loan and pay a down payment, if my parents want my name on the house so that I can have it after they are gone? or need a down payment to take over possession?
Reply to Lisa
- ARLO™
  August 25th, 2019
  
  Hello Lisa,
  You can do better than that! Your parents can add you to title at any time enabling you to retain the home when they pass. But you don't have to pay any negative, the program allows heirs to repay the loan after borrowers pass at the amount owed or 95% of the current value, whichever is less.
  If the balance is more than the value of the home, not only do you not have to pay the negative amount, but you don't even have to pay the full value of the home to pay off the loan, just 95%. You do have to refinance the loan or pay it off with other funds available to you but with the 95% payoff you may only need closing costs.
  You should check in advance with a forward lender to see what you will need when that time comes.
  Reply to ARLO
Stephen G.
August 15th, 2019

I just got a notification that the house is being auction and it's a reverse mortgage and my mom and dad have died and I have been living there with my dad before he passed away and am still living there how long do I have to get out?
Reply to Stephen
- ARLO™
  August 15th, 2019
  
  Hello Stephen,
  
  The notice will tell you the auction date and then the home will go to the highest bidder at the auction. That may or may not be the lender.
  When the home is sold at auction, the new owner will have to serve you notice based on the laws in the area in which you live to vacate the premises and I really can't give you any time frames but would encourage you to seek the counsel of a licensed attorney in your area for that information.
  Reply to ARLO
Eric
August 12th, 2019

My parents have a reverse mortgage on their second-floor walk-up condo. Due to their ages, the stairs is becoming increasingly difficult for them to handle. They will be moving, perhaps permanently, from that condo to a single story house (i.e. no stairs involved) that I am in the process of purchasing for them (and will include them on the deed of the house - but not in the mortgage).

While the transition occurs, could they rent the property that has the reverse mortgage so that they can, at a minimum, recover the cost of owning that condo (ie condo fees, property insurance, and taxes) while they transition to the new property? If so, what would be the maximum rental period allowed? I appreciate your help, Thank you Eric
Reply to Eric
- ARLO™
  August 12th, 2019
  
  Hello Eric,
  
  There is no maximum rental period. Once your parents rent the property, it is no longer their primary residence and the lender would call the loan due and payable as soon as they discovered the fact that it was rented followed by a foreclosure action.
  If they contact the lender and place the property on the market, the lender would work with them to get the property sold but by renting the home out, it is violating the terms of the loan and their intentions would be deemed to make the property an income producing, non-owner occupied property.
  You should read the loan documents as well; I believe there is an assignment of rents in the Deed which would allow HUD/Lender to have the rents assigned to them under such a default.
  Reply to ARLO
Karen
July 29th, 2019

My mother was 83 she Got a loan six years account she received $35,000 the reverse loan company is telling me in a year that she owes $106,000 it's only worth $75,000 what can we do to pay off this loan without simply walking away from the home?
Reply to Karen
- ARLO™
  July 29th, 2019
  
  Hello Karen,
  You may be reading the statement incorrectly. Have mom call the servicer with you there so she can authorize you to speak with them on her behalf. If the balance is as high as you think it is, you need to look at your mom's original paperwork, specifically the amortization schedule.
  The interest will not accrue that fast so I suspect mom may have had a loan with a balance that the reverse mortgage also paid off at closing. She may have only received $35,000, but there may have been other funds used to pay off existing loans.
  Finally, you can repay the loan at any time without penalty. But I'm also concerned about the balance in relation to the value you list. Since the loan starts at a fairly low loan to value, unless borrowers are taking a full draw (which HUD no longer allows unless the funds are to be used to purchase or pay off existing eligible liens), the loan would not use all the property's equity that quickly let alone the value plus another 33% over value unless there was a very large decrease in value.
  If this is the case, your mom would have realized a loan representing a very large percentage of the value of the home before the loss in value and has had the ability to live in the home without making payments. I would encourage you to review the closing statement, the actual value and verify what mom owes. The best thing for her may be just to continue living there payment free and let the loan take the loss later if all that is true.
  Reply to ARLO
Linda V.
July 21st, 2019

I'm 71 and have a reverse mortgage. With the interest the loan is now at $235,000. Appraised at $350,000. I want to pay this off. How can I possibly do it now?
Reply to Linda
- ARLO™
  July 21st, 2019
  
  Hello Linda,
  
  A reverse mortgage is no different than any other loan in this regard. You can pay it off the loan off in full at any time with funds available to you, by refinancing the loan with another loan or by selling the house and paying off the loan with the sale proceeds.
  Or you could choose to start making payments in any amount and pay it off over time. There is no prepayment penalty and while there are no payments due while you live in the home, you can choose to pay any amount at any time without penalty.
  Reply to ARLO
Paul H.
July 15th, 2019

My father recently passed away leaving his home with a reverse mortgage on it. There's likely $10,000 of equity in the home. My question is: Do we have to pay off the reverse mortgage company and then try and sell the home? Or, can we sell the home and use the proceeds from the sale to pay off the reverse mortgage? Essentially, I'm asking about the timing of when the reverse mortgage company expects to receive their pay-off amount?
Reply to Paul
- ARLO™
  July 15th, 2019
  
  Hi Paul,
  
  You can do it either way you choose. If you want to repay the obligation so that you have no time frames to worry about and then choose the best course of action for you and your family, that's entirely up to you. That would obviously require you to have the funds available to retire the loan though without a sale (either by cash available to you or by another loan).
  If you want to sell the property yourself and have the loan paid off through the closing, that's perfectly acceptable as well. The reverse mortgage servicer/lender will only want to know what your intentions/plans are and then will be monitoring to make sure that you are working toward achieving that goal within an acceptable time frame. They know it will take some time to clear title, market and sell the home if you plan to pay them off with sale proceeds so they will make sure that the efforts are genuine and reasonable.
  In other words if you wait many months before you even start to list and market the home, you would run the risk of the lender beginning a foreclosure action, They know that an uncontested, non-judicial foreclosure takes about 150 -180 days to complete from the date of filing so they will not wait too long if it appears that you are not making any progress toward retiring the debt before they start because it will take 6 months or more on average from the time they finally start.
  
  Communication is typically the best course of action. They do not want the home but will not wait forever to start a foreclosure action, especially if they are left in the dark. Show them that you are doing what is necessary to retire the debt (whether than means paying it off and keeping the home or selling the property) and they will work with you.
  Reply to ARLO
Sandra
July 10th, 2019

Can we get a reverse mortgage in a home owned by 3 siblings and no mortgage? Also, how long after the death of last sibling living in the house, do the heirs have to purchase the house?
Reply to Sandra
- ARLO™
  July 10th, 2019
  
  Hello Sandra,
  
  Yes, you can. Any of the siblings no living in the home or not eligible for the program would not be on the loan and would have to attend the counseling and also sign documents acknowledging that they are aware the loan will be due and payable when the last eligible borrower permanently leaves the home, but you can get the loan.
  You don't have to "buy the house back" when the last eligible borrower leaves, you already own it. But the loan would be due and payable at that time and you would have a limited time to either refinance the loan, pay it off with other funds available to you or sell the property if you were unable to get the necessary funds/financing to pay off the loan on your own.
  Typically, the lender will work with you for several months to determine what you are going to do and to allow you time to do it, but eventually, if they see no progress toward the loan repayment, they will begin foreclosure proceedings. A simple foreclosure typically takes about 150 -180 days if not contested and does not include the courts so if the lender waits several months and then begins the action, most borrowers end up having a year before the lender forecloses on the property, but this is not a guarantee.
  
  Neither the lender nor HUD want the property nor the responsibility to dispose of it. They will do whatever possible to allow you to refinance the loan or sell it, but they will want to see that progress is being made. Communication is key. Let them know if you are obtaining new financing the status and keep them informed of the progress.
  If you are selling, send them copies of the listing and any updates as they become available. If you are doing everything, they would have to do to market the property anyway and they believe your actions are genuine, they will be much more willing to grant extensions if needed later for a successful close of escrow.
  Reply to ARLO
Dona
July 10th, 2019

How do I go about paying off the reverse mortgage loan while my parent is still alive?
Reply to Dona
- ARLO™
  July 10th, 2019
  
  Hi Dona,
  
  Your parent can pay off the loan at any time and without penalty. Your mother/father can make a payment in any amount up to and including payment in full at any time. Your parent should request a Beneficiary's Demand in writing from the lender so that they know the exact amount to pay including any fees to close the loan (there are always some minor costs with any loan for reconveyance, recording, etc.) and then the best method would be to wire transfer the funds to the lender so that the funds are received the same day and are the same as cash. If you send a check or cashier's check, they will have to hold the payoff until they know the funds are good. Once the funds clear, they will record the reconveyance and the loan will be closed.
  Reply to ARLO
Minnie Stewart
June 3rd, 2019

I am upside down on my reverse mortgage is there any way to get out of my reverse mortgage?
Reply to Minnie
- ARLO™
  June 3rd, 2019
  
  Hi Minnie,
  I guess I would ask why would you want to? And not because I think that there is never a time when you might have to do so, but to be sure that this is the right time.
  The repercussions for leaving the home without paying off the loan or before you pass may not be a big deal to most borrowers but it could affect some aspects of your credit and it would mean that you may not be eligible for some HUD programs while there is a loss outstanding on this loan.
  If you never plan to buy another home (going to live with family or into assisted living), this may not be a concern at all. Even if your balance is higher than the property is worth, you can continue to live in the home for life without having to make a payment on the mortgage so just being upside-down is no concern.
  If you need to leave the home because you just can't maintain it anymore though, or you have medical issues that require you to leave, etc., all you need to do is contact your lender and let them know that you can no longer continue to live in the home and tell them you believe the home is worth less than the balance so you do cannot sell the home and wish to Deed the home to them.
  There is no recourse with a reverse mortgage so the only collateral the lender has is the home. There are some things they will have to do to insure the title is clear, etc., but will do everything they can to accommodate you rather than having to go through the time and expense of a foreclosure process if they can.
  If you have other liens, etc., they would not be able to accept a Deed from you because by so doing, they would also be accepting your other debts. But they will go through all the options with you when you contact them.
  Reply to ARLO

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