Regarding the rule that the homeowner has to reside in the home: how long could that homeowner be absent (e.g. on an extended vacation) before they would be considered not residing in the house. Would they be allowed to have someone else living in the house to care take?
Hi and thank you for your questions. I am going to start with the second question as it is the simpler question to answer without reservations. The reverse mortgage does not prohibit a borrower from having anyone else live in the property such as a family member of a live-in caregiver.
The borrower(s) may certainly bring in help to assist them in their living needs whether that be family or a paid medical caregiver. If and when the borrower(s) leave(s) the home to permanently reside in a nursing care facility or pass, then the loan would become due and payable and it would be up to the heirs of the borrower to contact the servicer to make arrangements to sell the property, refinance the loan or pay off the loan with other funds.
The question about the extended vacation is the one that gets into the gray area. The Security Instrument for the Home Equity Conversion Mortgage (in California it would be a Deed of Trust), states specifically that if the Property ceases to be the principal residence of at least one of the original borrowers during a period of 12 consecutive months after closing due to mental or physical illness, then there are grounds for acceleration of the debt (it can be called Due and Payable).
In other words, if a borrower is forced to go to a hospital for more than 12 consecutive months and there is not still one original borrower remaining in the home (not a family member, but a borrower who is on the loan), then the loan shall become Due and Payable and must be paid in full at that time.
The documents do not state specifically how long a borrower can be out of the home for an “extended absence” for things other than mental or physical illness, like a vacation. Most of the time it’s only a matter of contacting the servicer, notifying them that you will be on an extended vacation in case they try to contact you while you are gone and everything is fine. However, that would depend on the time of the absence.
The underlying guideline will be whether or not the borrower(s) is/are absent long enough to still consider the property the primary residence. If the borrowers want to take a 3 or 4 month vacation, no servicer I know would take issue with that time period.
If the time frame was to be 2 years, I think it would be safe to say that the property was no longer their primary residence during that period and therefore under the HUD rules, they would have to call the loan Due and Payable.
Unfortunately, there is no set time period on the Deed of Trust for which the borrowers can be out of the home on a “vacation” basis so I cannot give you a definitive answer. What servicers are doing today as a matter of policy may not be the same as they do tomorrow and unless it is specifically spelled out in your loan documents, there is some room for HUD and the servicer to interpret and change policy.
However, I can tell you this for sure: good communication with the servicer goes a long way. If you have a reverse mortgage and you get the opportunity to travel for extended periods, notify your servicer and make sure they are aware of the circumstances.
As long as they are sure that the home is still occupied as your primary residence and that the borrowers have not left the home, they can work with you to make certain there are no miscommunications.
The troubles typically start when people think they need to hide something and when servicers can’t get in touch with borrowers, that’s when it really appears the home has been vacated for good and the servicer needs to take action.
Click here to download a helpful .pdf brochure written by our servicing company Celink in regards to occupancy requirements.
Here are some additional posts you may find helpful:
- How does a Reverse Mortgage work
- Understanding Your Reverse Mortgage Statement
- Reverse Mortgages “What Happens After Death”
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