Can you get a Reverse Mortgage with a Life Estate?

April 25, 2024

Question from an ARLO Reader:

I am considering a reverse mortgage and have my debt-free property in a Life Estate; my sister is the Grantee. I understand she would have to sign the loan/closing docs without having had the counseling, but I am confused about whether that title would still be held in the Life Estate, correct? Are there any negatives here? Also, if I quitclaim her off before the reverse mortgage is executed, can I quitclaim her back the same Life Estate, and if so, would that entitle her to the same rights as an heir for the reverse mortgage upon my death?

Let me make sure I have the facts straight: your sister granted property to you for the term of your life (a life estate). This property now has no liens or mortgages, and you wish to do a reverse mortgage.

If I am correct in that those are the basic facts, I can offer the guidelines to tell you what must be done to complete a loan under these circumstances.

You can close a reverse mortgage loan in a life estate in all states except Texas.

You have to follow particular procedures, and based on your questions, I’m not sure about a few things. What I cannot tell from your question is who will have the reversionary or remainder interest upon your passing (it could be your sister or other parties).

In any case, the borrower and anyone with a remainder interest in the property typically has to attend the counseling and sign the security agreements, the notice of right to cancel, and the Truth in Lending Disclosure.

While the holders of future interest do not sign the loan agreement, they do sign the Deed of Trust, the Riders, and Rescission. Possible negatives could be that your sister may be unable to pay off the debt when the property reverts to her and may be forced to sell the property.

She could never be forced to pay more than the property was worth, but I do not know the agreement between you and your sister regarding the property’s value and the lien situation when she or her heirs get the parcel back.

Also, you could not quitclaim her back on the title after the loan closed, as any change of title after you complete a reverse mortgage would cause the loan to be called due and payable. I cannot comment on her rights as an heir. That would depend on how the legal documents are drawn and should be done with the advice of competent legal counsel.

This all gets back to how the life estate was initially established. If she were the grantor, she must already have the remainder of the interest and own the property when you pass. Here again, the help of a competent attorney will tell you who has what rights based on the way the documents are drawn now and what you would need to change to accomplish what you would like.

HUD Guideline Update:

The lender must obtain a copy of the document granting the borrower a life estate (i.e., deed).

Eligibility Requirements for Borrowers Holding Only Life Estates (i) Standard A Borrower who holds only a life estate is eligible for a HECM, only if all holders of any reversionary or remainder interest will also execute the Mortgage and attend HECM counseling. Required Documentation For life estates, the Mortgagee must obtain a copy of the document granting the Borrower a life estate.

Source: https://www.hud.gov/sites/dfiles/OCHCO/documents/4000.1hsghhdbk1223.pdf

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25 Comments on this Article

Nita
July 31st, 2024

My granddad had a reverse mortgage with a loan amount of $180,000. The home is now valued at approximately $300,000. We did a Lady Bird Deed (in Florida) so I won't have to go through probate. Approximately how much of the loan will have to be paid, and do I have to transfer his deed before I can refinance or sell the home? He passed away about 2 months ago at the age of 96.
Reply to Nita
- Michael Branson
  July 31st, 2024
  
  Hello Nita,
  The outstanding balance of the loan and must be paid at this time would be what is due and would need to be paid. When you say the "loan amount is...", I don't know if that was the Deed of Trust amount that was recorded, if that is the current balance, or if that is his Principal Limit or the total loan balance that was available to him. If your grandfather has only borrowed a portion of the loan available to him, you would only need to repay the amount he actually borrowed plus any fees and interest he accrued.
  If he owes $180,000 at this time, that is the amount that needs to be paid. If he borrowed less, only the actual amount plus interest, accrued mortgage insurance and any fees would need to be repaid. If he borrowed the entire amount many years ago and interest accrued so that the balance was over the current value of the home, you always have the right to repay the loan at the outstanding balance or 95% of the current value, whichever is less. Without knowing which scenario is accurate, I can't tell you what the payoff will be but the sooner you pay it off, the sooner the interest stops accruing.
  Reply to Michael
- Michael Branson
  July 31st, 2024
  
  Hello Nita,
  The outstanding balance of the loan that must be paid at this time would be what is due and would need to be paid. When you say the "loan amount is...", I don't know if that was the Deed of Trust amount that was recorded, if that is the current balance, or if that is his Principal Limit or the total loan balance that was available to him. If your grandfather has only borrowed a portion of the loan available to him, you would only need to repay the amount he actually borrowed plus any fees and interest he accrued.
  If he owes $180,000 at this time, that is the amount that needs to be paid. If he borrowed less, only the actual amount plus interest, accrued mortgage insurance, and any fees would need to be repaid. If he borrowed the entire amount many years ago and the interest accrued so that the balance was over the current value of the home, you always have the right to repay the loan at the outstanding balance or 95% of the current value, whichever is less. Without knowing which scenario is accurate, I can't tell you what the payoff will be, but the sooner you pay it off, the sooner the interest stops accruing.
  Reply to Michael
Kathleen
July 1st, 2024

My husband and I are on my uncle's Life Estate and Quit Claim Deed on his property (a multifamily home - we have lived there for 4 years, and he added us to the Life Estate 3 years ago). He opened a reverse mortgage on the home over 20 years ago.

My uncle recently had a stroke and has been in an assisted living home for almost one month. He had other health issues prior, and we have previously discussed buying out the house (to undo the reverse mortgage), but only in my husband and my names. Doing this would involve refinancing and revising a new deed with just us on it (I have already sat down with a bank). We're trying to prevent more equity from being taken away (his 33.3% share of the Life Estate) potentially by the nursing home or assisted living should he need to stay longer than insurance will approve.

My family plans on applying for MassHealth 65+ for him. We had varying opinions on whether proceeding with purchasing the house in our name will affect his application. I know MassHealth will look back 5 years.

MassHealth forms have not yet been filed. We know it can take months to process. My husband and I are actively in the process of getting the refinance approved.

In your opinion, can MassHealth deny him coverage if we move forward? I have a friend who works in a nursing home, and she said that MassHealth will likely contact us, ask if we can switch his name back onto it, we can say no, and they can't do anything about it nor deny him coverage if he doesn't have many assets. Is this true? I don't want to hinder him from getting MassHealth, but I also don't want things to get messy with this Life Estate situation and the reverse mortgage.

Also, I thought there was a clause on the reverse mortgage that if he hasn't been living at home for a certain number of days (90 days?), the lender could seize the property and sell it. With the Life Estate in place, will that secure the property in case he needs long-term care and won't return home soon? Or would the only way to secure it be to move forward with refinancing it in my husband and my names only?
Reply to Kathleen
- Michael Branson
  July 2nd, 2024
  
  Hello Kathleen,
  I cannot provide advice regarding benefits and eligibility with MassHealth. I would be happy to answer any questions about the reverse mortgage, but any legal, accounting, or insurance questions should be directed to individuals licensed in those areas. I suggest directing your questions about benefits and potential repercussions with MassHealth to an expert who deals with the program regularly.
  Regarding your question about your uncle's stroke and his move to assisted living, I can shed some light on your options. The reverse mortgage allows borrowers to be out of the home for up to 12 months for temporary medical reasons. While your uncle is in assisted living, you need to inform the lender/servicer of the circumstances so they do not call the loan due and payable under the assumption that he has left the property permanently. This gives you 12 months to determine if he will be able to return home. If he is unable to return after 12 months, the absence would be considered permanent, and the lender would call the loan due and payable. You would then need to know how you plan to settle the reverse mortgage at that time. Even then, any action the lender took would not be immediate.
  The lender cannot "seize the house and sell the property." Instead, they will call the loan due and payable after the 12 months and contact the borrower to arrange for repayment. If the borrower or their family does not take steps to pay off the loan, the lender can ultimately foreclose on the loan. The lender can never simply seize the home because they do not own it. If you know your uncle will not return home, there is no reason to wait the full 12 months before paying off the loan, which you are already making arrangements to do. Paying the loan in full before the 12 months expire will eliminate concerns about the 12-month deadline.
  I must caution you about changing the title on the property. The reverse mortgage allows your uncle to add anyone to the title as long as he remains on it. If the title changes so that your uncle is no longer on the title or no longer has the life estate, the lender would be notified of the change, and that would trigger the due-on-sale clause, causing the loan to be called due and payable immediately. Therefore, if you are not ready to pay off the reverse mortgage or secure a new lender, you may want to delay any title changes. Avoid having the lender add foreclosure charges by holding off on title changes until you are ready to pay off the loan.
  Reply to Michael
Patti
May 13th, 2024

What takes precedent, a reverse mortgage or a ladybird deed? We can't get answers because the only person on the loan is deceased.
Reply to Patti
- Michael Branson
  May 13th, 2024
  
  Hello Patti,
  
  The interaction between a "Lady Bird Deed" and a reverse mortgage is a complex matter. A Lady Bird Deed conveys a life estate, while a reverse mortgage secures a loan. One of the key benefits of a Lady Bird Deed is that it transfers property ownership to the named beneficiary(ies) upon death, bypassing the need for probate. However, it does not eliminate any mortgages or liens on the home. The Lady Bird Deed is only available in about 5 states, and I must stress that I am not an expert on this form of title. It's important to note that the Lady Bird Deed allows the person with the life estate to retain control of the property while alive, including the ability to sell or mortgage it. However, this does not eliminate any mortgages or liens once the owner passes, especially if they borrowed against the property while living.
  
  From the way it has been explained to me, neither takes precedence over the other. They would act independently of one another. The life estate would transfer the ownership to the heir as prescribed, and the loan would not take precedent or even affect that transfer to the heirs in any way. The mortgage would still exist, though, and would still need to be repaid as a lien on the property that would be due and payable at that time. This is my understanding and is by no means a legal interpretation of the instrument. If you have a specific situation where you are trying to determine what you need to do with a property, it would be best to contact an estate attorney so that he/she can advise you legally regarding your specific circumstances.
  My answer to you as a lender is that the loan would now need to be paid in full if the borrower is no longer living in the property as their primary residence if you want to keep or sell the property. If you are concerned about issues regarding the title or feel that something else is not right, you need to talk to someone who can advise you legally.
  Reply to Michael
Tom
November 19th, 2023

My mother had a life estate on property that I am the remainder of. She did a reverse mortgage without my knowledge. Is the reverse mortgage valid/enforceable?
Reply to Tom
- Michael Branson
  November 19th, 2023
  
  Hello Tom,
  
  I can't answer a legal question for you. For that, you would need an attorney. Most courts will not invalidate a mortgage lien unless that is a recognized remedy for an offense committed. Invalidating a federally insured lien would be a severe penalty, and I do not know the answer you seek. I can tell you, though, that under the reverse mortgage guidelines, to do a reverse mortgage on a property wherein the title is held in a life estate, there is involvement required of the remainderman in the estate. If that was not done, the question becomes, why not? Did the lender make an error, did the borrower somehow deceive or defraud the lender, or was a third party involved (or a little combination of each or all of those factors)? In other words, was the lender negligent in the origination of the loan, or was the lender also defrauded? At any rate, you need to speak with an attorney to determine what your possible recourse would be at this time.
  
  I don't know if your recourse is against the lender if the lender made the loan in good faith and you need to seek damages from another party or what. I can only assume you already spoke with your mom, and I do not know what she told you. If she told you that you were not needed for the transaction, that would not be accurate for HUD or any title company. If Mom can no longer tell you what transpired, you may never know. In any case, what I can tell you is that I am not the person who can advise you in this matter, and to protect your interest, you do need to talk to a person who can.
  Reply to Michael
Andrew
October 17th, 2023

Hi Arlo,

We live in Florida. I have a ladybird deed with my dad's home which is involved in a reverse mortgage. The finance company will not add my name to the title. From what I understood, they paid off the loan and gave him $2,000. And allowed him to remain in the home until he's deceased so long as he keeps the property paid and keeps homeowners insurance. The home is in really bad shape, he is living in a fixed income, can't afford the repairs and has poor credit ratings. The insurance company canceled his policy because he could not repair certain damages through out of pocket expenses and he does not qualify for any home improvement programs because of the reverse mortgage. My dad is 96 years old with a very limited education. I'm I able to do a quick claim deed in our county on the property? Or please advise as we are desperate and about to lose the home.
Reply to Andrew
- Michael Branson
  October 17th, 2023
  
  Hello Andrew,
  
  I am not an attorney, and I cannot give you legal advice. I know a little bit about Lady Bird Deeds, but I do not know enough about them to tell you with certainty what you can and cannot do, and even if I did, that would fall under the heading of legal advice and not advice about the reverse mortgage anyway which I cannot give. You really need to speak with an attorney.
  
  With a quick internet search though, I found a law firm there in Florida that had a lot of information about Lady Bird Estates. A Lady Bird Deed formerly known as an Enhanced Life Estate Deed, is perfect to avoid probate upon the death of the life estate holder in Florida. ASR Law Firm in Florida states that there are benefits and disadvantages to Lady Bird Deeds. Lady Bird Deeds allow the person who holds the life estate to maintain control over the property including selling the property or financing the property. It goes on to say that the beneficiaries have no rights to the property and their consent is not required during this time according to this site.
  
  This is why you really need to talk to an attorney. I'm not sure what your goal is to record a Quit Claim Deed. A Quit Claim Deed transfers title to real estate without giving any guarantee as to the quality of title or that the grantor even has any title to grant in the first place. Many title companies will not insure a title that has passed using a Quit Claim Deed. And if you are asking if you should execute the Deed, your father still holds the life estate with the control over the property including the right to encumber or sell the home under that Lady Bird Estate. So, the Quit Claim Deed is basically worthless.
  
  If your dad was to sign a Warranty or Grant Deed to you alone, transferring ownership to you at this time, you would own the property, but then the reverse mortgage would become due and payable. There is nothing to legally prevent your dad from doing this but if he does it, the lender will call the loan, and you will be required to pay the loan off with other funds available to you or with a refinance loan at this time. If you are unable to do so in the next 90 days or so, the lender will begin foreclosure proceedings. Your dad can also sign a Warranty or Grant Deed to both you and himself with the right of survivorship that would accomplish three things: it would bring you on title now, it would pass title to you when dad passes, and since dad is still on title as well with this type of conveyance, it would not trigger a due on sale clause for the loan.
  
  Now again, let me repeat, I am not an attorney, and this is not legal advice! I strongly recommend that you obtain legal counsel because you want to be sure you do not do anything that would defeat your wills, deeds, estate planning, or record a Deed that would create a taxable event. I can only tell you what the loan will do and give you some possible things to consider about the Lady Bird Estate particulars to consider, but the estate attorney will make sure you don't make a misstep that places your home in jeopardy.
  Reply to Michael
ALICIA W.
April 23rd, 2023

Hi Arlo,

On an enhanced life estate in FL, the remainderman takes ownership of the property when the grantor passes, if there remains equity in the property can the remainderman sell and pay off the reverse mortgage and maintain any excess proceeds?
Reply to ALICIA
- Michael Branson
  April 25th, 2023
  
  Hello Alicia,
  The loan becomes due when the borrower(s) pass but the remainderman still owns the home by virtue of the terms of the life estate. The remainderman can pay off the loan with other funds available, can pay it off with a new loan, or yes, can sell the property and pay off the loan with the sale proceeds if that is his/her wish.
  Reply to Michael
Carolyn
April 14th, 2023

Hello Arlo,

In 2009 my father and siblings signed a "life estate deed" when our mother died. A few years later, my father did a Reverse Mortgage so he could stay in the house. There was no equity in the home. We all were witnesses and agreed it was a good decision. In 2021 our dad passed away. Novad sent paperwork stating the place should be sold at 90% of the loan or given to them.

Well, the home was not worth what had been paid out by Novad (reverse lender), so we told them to take the house. My question is, If my name is on the Title of the house and the "life estate deed," do my siblings, or I have any legal right to the house without paying the mortgage company since the loan was in our Dad's name? Does a title override a deed?
Reply to Carolyn
- Michael Branson
  April 14th, 2023
  
  Hello Carolyn,
  
  When you gave your father the Life Estate Deed, you gave him a Deed that vested the property to him for the term of his life. Typically, the Life Estate is made up of the person(s) living in the property known as the life tenant(s), and the person(s) who will receive the property upon the passing of the life tenant(s), known as the remainderman(men).
  Because the life estate is less than full ownership of the property, if the life estate was created before the reverse mortgage was closed, any remaindermen should have been required to give consent to the financing because the new loan would affect a property in which they hold interest (this would be true for any new mortgage for a property subject to a life estate).
  
  If you and other named remaindermen consented to the loan, I can't see how you have a defense for any objection to the loan, but I am also not an attorney. A Deed is a conveyance of the title. A Deed of Trust represents an agreement between a borrower and lender to have a property in trust for the repayment of the loan, and that Deed of Trust transfers the legal title of the property to a third party known as the Trustee.
  So, when you ask, "Does a title override a deed," there are or could be so many different things happening here that would affect your title that may confuse you. Still, you may have already given up some of the rights of your title until the loan is repaid when you allowed (if you allowed) your father to get a new loan.
  However, if you feel that you never did any of those things with the Life Estate and never did grant your consent for the loan, then I would suggest that you contact an attorney in the state where the property is located to have everything reviewed. I can tell you the documents, but I cannot know if they were all used correctly or gave you legal advice. For that, you need to speak to an attorney.
  Reply to Michael
Karen T.
September 27th, 2022

Hi Arlo,

My father may need a reverse mortgage. The property deed is an "enhanced life estate" also known as a Lady Bird deed in Florida. There is no current mortgage against the property. Can he get a reverse mortgage if the property has a lady bird deed?
Reply to Karen
- Michael Branson
  September 27th, 2022
  
  Hello Karen,
  
  In most instances yes. Obviously, the lender would need to review the title to determine that there are no restrictions that would prevent the transaction but many seniors who hold title in such a manner do get reverse mortgages.
  Reply to Michael
Robert
April 15th, 2022

My son is the remainder man in our Life Estate. When my wife and I pass, can he live in the home without having to sell or pay off the reverse mortgage?
Reply to Robert
- Michael Branson
  April 15th, 2022
  
  Hello Robert,
  
  The short answer is no.
  The individuals who owned the property and who qualified as reverse mortgage borrowers established a trust and may be referred to donor, grantor, trustor, or trustmaker but when at least one of the original qualifying individuals under this trust no longer occupies the home as their primary residence, the home becomes due and payable.
  It doesn't delay the due clause if the remainderman, the trustee or other beneficiary is/are are still living and occupying the home, it must be at least one of the original qualified borrowers. The reverse mortgage is not a multigenerational loan and was never meant to be.
  If your remainderman is eligible under the current reverse mortgage guidelines, he can apply for a reverse mortgage of his own and refinance the loan with a new reverse mortgage in his own name. Otherwise, the loan would need to be paid off with other financing, other funds available to him or through the sale of the property at that time.
  Reply to Michael
Jeanine R.
May 29th, 2019

I deeded my home to my children in a "Lady Bird" or Life Estate deed. I understand I can use my property for collateral for use as I need it. Is this true?
Reply to Jeanine
- Michael Branson
  May 29th, 2019
  
  Borrowers with Life Estates can get reverse mortgages. I only advise that you let your children know what you are doing so that they are aware of the loan and what must be done at the time you are no longer living in the property.
  We have had several family members calling here or sending questions who were not aware their mom had done a reverse mortgage and were surprised when the loan needed to be addressed thinking that mom didn't have the ability to take out such a loan.
  Reply to Michael
Carla R.
December 31st, 2018

My father's widow had a life estate in the home in Texas. The will which was probated states she can live in the house. Somehow she obtained a reverse mortgage even though the house is not in her name. She passed away and I am the heir in the will. What do I do now?
Reply to Carla
- Michael Branson
  December 31st, 2018
  
  Hello Carla,
  
  A life estate will qualify for a reverse mortgage because the borrower does have a life interest in the property and that would be the duration of the loan. Now that you own the home as the heir, you will need to decide what you want to do with the property, but the loan is now due and payable. You can refinance the loan with a new loan in your name or you can sell the property and pay off the loan with the proceeds of the sale.
  If the property is not valued as high now as the amount owed on the loan, you have the right to pay off the loan at 95% of the current market value of the home or the amount owed, whichever is less if you still want to keep it. If you are not interested in keeping the property, you can choose to walk away and let the lender foreclose and you do not "have" to do anything. It is completely your decision based on what you want to do and what works best for you.
  Reply to Michael
Gail Farrer
October 12th, 2018

My sister & I were quit claim deeded to my dad's home. His name does not appear on the title except as"the life estate of". Can he still get a reverse mortgage?
Reply to Gail
- Michael Branson
  October 12th, 2018
  
  Hello Gail,
  
  Yes you can as long as you meet the requirements for the loan. Both of the sisters have to be eligible for the reverse mortgage program (62 years of age or over), they both have to occupy the property as their primary residence and there can be no other individuals who have any interest in the property during the term of the life estate. Other than that, you would have to qualify for the loan just as any other borrowers.
  Reply to Michael