5 Ways You Can Lose Your Home with a Reverse Mortgage

August 24, 2021

A reverse mortgage can be a powerful tool for an American senior aged 62 or older to create a new source of cash flow from his or her home equity.

With a Federal Housing Administration-insured Home Equity Conversion Mortgage (HECM), the borrower still retains ownership of the property while continuing to live there over the course of the loan. He or she is not required to make monthly mortgage payments during that time.

Reverse mortgages are often misunderstood, and a common misperception is the idea that in a reverse mortgage, “the bank takes the home.” On the contrary, if the borrower meets the loan terms, that borrower maintains ownership of the home throughout the entire course of the loan.

The loan balance grows over time, and when the borrower moves or passes away, the borrower and/or his estate is responsible for the repayment of the loan. However, there are still events that can lead to a borrower defaulting on the loan, which can, in turn, lead to foreclosure resulting in you losing your home.

This article will detail those events.

Reverse mortgage protections

In a reverse mortgage, monthly mortgage payments are not required, as with traditional forward loans. However, the borrower is responsible for maintaining payment of property tax, homeowner’s insurance, and property maintenance to FHA standards.

Several borrower protections implemented in recent years have greatly reduced the number of reverse mortgage defaults resulting in foreclosures.

These protections include:

Reverse mortgage counseling
Non-borrowing spouse protections
A financial assessment and set asides for some loans

5 Ways to Default on a Reverse Mortgage Loan:

Keeping up with all property taxes and insurance is among a reverse mortgage’s most important borrower obligations. While borrowers do not face monthly mortgage payments, they are still responsible for property tax and maintaining insurance on the home.

1. Failure to maintain property charges

If a reverse mortgage borrower were to default on the payment of property taxes, then in addition to contending with the local government over non-payment, the reverse mortgage is also at risk of being called due and payable.

Property taxes must be paid on time to keep the loan in good standing because if taxes go unpaid, then the taxing authority would have the right to place a lien on the home because of it.

This puts the reverse mortgage lender at risk since a reverse mortgage takes the first-lien position on the home. Some localities offer resources for borrowers if they have difficulty paying their property taxes.

For instance, several states allow the deferment of property taxes (though they will still have to be repaid later). Others offer assistance programs designed to help homeowners cover their property taxes.

Resources about some of these programs can be found on the Consumer Financial Protection Bureau (CFPB) website.

2. Failure to maintain homeowners insurance

Similar reasoning applies to the necessity of keeping up with homeowner’s insurance.

At the end of the day, reverse mortgage lenders want to avoid as much risk as possible, so homeowner’s insurance is a requirement of all reverse mortgage properties.

3. Failure to maintain your home in reasonably good condition

Reverse mortgage borrowers are responsible for keeping their homes up to FHA standards. This means that if the home falls into disrepair, this can trigger a foreclosure action and force you, as the borrower, to leave the home.

There are a few specific requirements that, if not met, could lead to a default event and eventual foreclosure if the default is not resolved.

4. Failure to occupy your home as a primary residence

If you move, your loan becomes due and payable. According to the terms of a reverse mortgage, the home you are borrowing against must remain your primary residence for the life of the loan.

Therefore, most reverse mortgage companies advertise that you can remain in your home without making monthly mortgage payments either until you move out or you pass away.

If you move out of the home and a routine occupancy check determines that you no longer reside in it, then the reverse mortgage servicer is going to ask for the loan to be repaid.

The lender may initiate a foreclosure action to satisfy the loan repayment if it is not repaid. If you move or leave the home and do not maintain primary residence there, then the servicer can call the loan due and payable.

5. Non-borrowing spouses must be disclosed to gain protection.

Similarly, if you – as the primary borrower – pass away before your spouse, and the spouse is not listed on the loan as either a co-borrower or non-borrowing spouse, then that spouse could end up facing a foreclosure action.

Recent years have seen new protections instituted for the non-borrowing spouses of reverse mortgage borrowers. Still, it is always advised that an affected couple inform the lender and servicer of everyone involved in the transaction at every possible step of the process.

Top FAQs

Can you lose your house with a reverse mortgage?

A Reverse mortgage is a loan with obligations to meet; therefore, you can lose your house with a reverse mortgage. That said, as long as you live in your home as your primary residence, maintain your taxes and insurance, and keep the home reasonably, your loan will be in good standing. The only way for the loan to be called due and payable is if you vacate the property permanently or fail to maintain the property’s taxes and insurance or upkeep.

Do you have to pay the property taxes with a reverse mortgage?

Yes, as the homeowner, you must pay the property taxes when you have a reverse mortgage. If your reverse mortgage has a LESA (Life Expectancy Set Aside) for taxes and insurance, the property taxes will be paid from the set aside for as long as the funds last. Suppose a homeowner has a LESA and lives longer than their life expectancy. In that case, the funds in the LESA could run out, and if that were to happen, the responsibility for paying taxes and insurance would fall back to the homeowner.

What happens to a home with a reverse mortgage when the owner dies?

The loan becomes due and payable when the property owner and borrower on the reverse mortgage dies. At that time, the heir(s) will contact the loan servicer to communicate their plans with the property. The heir(s) can pursue one of several options depending on how much is owed on the property compared to its current value.

Heir(s) can sell the property to pay off the balance if the balance owed is less than the current value. Heir(s) can pursue a refinance with their loan to pay off the balance if they qualify. Heir(s) can pay off the balance with other funds such as life insurance or savings. Heir(s) can assign the home to the loan servicer if the amount owed is greater than the home’s current market value. In this scenario, the heir(s) are not obligated even to sell the property, and the servicer will sell the property. Additionally, if the heir(s) wish to keep the home, they can pay 95% of the current assessed value to keep the property. The mortgage insurance fund covers the loss as the reverse mortgage is non-recourse. You cannot owe more than the value of the property.

How many reverse mortgages end in foreclosure?

The exact number of reverse mortgages that end in foreclosure is unknown at this time, but it is possible to end in foreclosure on a reverse mortgage. While it is more difficult to end in foreclosure with a reverse mortgage than a traditional one since you have no mandatory monthly mortgage payment, it is possible. Suppose you vacate the property permanently, which is no longer your primary residence, or fail to maintain your property taxes or homeowners insurance. In that case, your loan will be called due and payable.

How can I stop a reverse mortgage foreclosure?

A homeowner could pursue a few options to stop a reverse mortgage foreclosure. One option would be to sell the property before the foreclosure process is completed. While the timeframe varies from state to state, the foreclosure process usually takes several months to conclude legally, giving the homeowner enough time to sell the property in some cases. Another option would be to refinance the loan to another type of loan product (if possible) or pay off the outstanding balance with other funds. Lastly, the homeowner could pursue options with the servicer to rectify the situation. If rectified promptly, it may be possible (not guaranteed) to cure the default and reinstate the loan into good standing. An example of a timely rectification would be a missed tax payment due to a hospitalization or other extenuating circumstance that could be rectified relatively quickly.

Summary – you can lose your home in a reverse mortgage if:

You leave the home
- For six months or more out of a year for a non-medical reason
- For 12 consecutive months
- You pass away, and your remaining spouse is not listed as a borrower or non-borrowing spouse
You do not keep up with property taxes
You fall behind on homeowner’s insurance payments
You allow the home to fall into disrepair

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11 Comments on this Article

John G.
May 6th, 2023

Can a lien be placed against a reverse mortgage?
Reply to John
- ARLO™
  May 9th, 2023
  
  Hello John,
  
  A lien cannot be placed against any loan. The lien is recorded against property (real or personal) to secure an obligation. Real property liens have priority according to the laws in the state. For instance, in California, where we are located, liens are generally prioritized by recording date. Certain liens, such as taxes and leasehold estates, are recorded and run with the land and so they take priority over the mortgage loans that lenders record later. That is why lenders are so careful to be certain that they are paid and current so that they do not lose their security interest in the property due to the borrowers' non-payment of superior liens.
  
  In the case of reverse mortgages, the reverse mortgage lender will require title insurance to be certain there are no other liens prior to their Deed of Trust that would have priority over their security interest when they record their reverse mortgage. Any other creditors that come later can file a court-approved lien on the property, but the reverse mortgage loan/lien would take priority over all subsequent liens (except the taxes, of course, which were there first). And liens filed and subsequent creditors would be considered "junior" liens to the reverse mortgage lender, which means that the reverse mortgage lender would receive all amounts required to pay their loan in full before any other creditor would receive a dime when the property was sold.
  
  Now for the disclaimer. I am not an attorney, and this is not meant as legal advice. I am only letting you know that the existence of a reverse mortgage will not stop any other creditors or litigants who obtain a lien through a court action from placing that lien on your property. I cannot tell you if any specific lien in any state bears the risk of a forced sale. In other words, I simply do not know what rights lienholders have in any state. I have also heard that certain liens can expire after so many years, but I don't know what type of lien it was, what that timeframe was, in which states this is true, or if it was able to be renewed. For these reasons, I would always recommend that you contact an attorney to determine your rights, obligations, and possible repercussions when you are faced with a lien situation on your property.
  Reply to ARLO
Howard
August 12th, 2021

What happens if the mother dies? Can her son keep the house but he's not on our plan what does he do to keep the house?
Reply to Howard
- Brenda B.
  September 28th, 2021
  
  If I die and my daughter isn't on the loan can she live in the home long as she pay taxes and homeowners insurance?
  Reply to Brenda
  - ARLO™
    October 13th, 2021
    
    Hello Brenda,
    
    No, the loan would become due and payable when you passed if she is not also a borrower on the loan. The only exception to this for individuals who are not yet 62 years of age is for eligible non-borrowing spouses.
    If your daughter is living with you and you do not believe she would be able to pay off the loan or refinance it with a new loan in her name at that time, a reverse mortgage would not be a good choice for you unless you and she agree that she is going to sell the home at that time and move.
    I don't know what her financial situation is or what it would be at that time with no mortgage payments and money from the reverse mortgage to fall back in in the meantime, but if she is old enough and both she and the property qualify at the time, she could possibly get a reverse mortgage of her own at that time as well. That would also be dependent on the loan balance, the program parameters that that time, interest rates, property values, etc. so there is certainly no guarantee that a refinance is possible.
    My best advice to you both if you decide to proceed with the reverse mortgage is to realize that the day will come when the loan will be due and to save and prepare for that time as much as possible between now and then.
    Reply to ARLO
Butch S.
February 12th, 2021

What if my dad defaults on a personal loan, then passes away....will my mother lose the home?
Reply to Butch
- ARLO™
  February 15th, 2021
  
  Hello Butch,
  Typically personal loans are not secured by real property and so her house should not be affected but I honestly cannot assure you of anything because I do not know what the loan used for security. I would advise you to see if you can find the loan documents to see what rights the lender had and if you are still concerned, you may wish to run it by an attorney to have it reviewed. It will not affect the reverse mortgage but I cannot tell you what other remedies the lender of the defaulted loan may have to collect their debt.
  Reply to ARLO
Evangeline O.
January 6th, 2021

A friend got a RM when she was in her 50's. She is still alive, and she is close to 80 years old with no sign of being sickly. So, the mortgage co came up with a bill that was not part of the original contract and made her pay it. When, she could not pay it, the house was foreclosed for a balance of about $2,000 on this bill and she lost her home. The reverse mortgage is a business and not a continuous gift so if the owner does not die, then, loopholes are created by mortgage company to get their money back.
Reply to Evangeline
- ARLO™
  January 6th, 2021
  
  Hello Evangeline,
  I am sorry to take exception with your third-party account, but the things you state are not possible if the loan is an FHA-insured loan.
  The reason I say "if" is because there were some reverse mortgage programs prior to the loan becoming a HUD program that I could not begin to vouch for every aspect of the loans, but since the loan became a HUD/FHA insured program, the minimum age for borrowers is 62.
  If your friend is in her 80's that should still make her one of the FHA-insured loans though unless she is in her late 80's and she somehow found a private reverse mortgage loan in her early 50's.
  Otherwise, her loan could not be made as a HUD program because she could not get a reverse mortgage before the age of 62. HUD did not introduce the provision for eligible non-borrowing spouses until 2014 and they were not available until early 2015.
  If her loan is with a private investor, I cannot comment on its terms but I would still say that terms cannot change on a contract (loan) after the contract so she should speak to an attorney if that is the case.
  Getting back to the HUD HECM loans originated for the past 33 years, a reverse mortgage is a loan like any other. The lender has no authority to do anything with your property other than what you give them when you sign your original loan documents.
  They can never suddenly produce a bill that is not part of the original agreement and foreclose if you do not pay it.
  Typically, when we see unpaid assessments that lenders must collect from borrowers it is for taxes, HOA assessments levied by the association that must be paid to prevent HOA foreclosure or some other lien that the lender must pay to protect their lien position.
  Provisions requiring you to make these payments (and on time) are in all the original documents - they are not loopholes snuck in later. If it happens that you do not pay property charges as they become due, like any other lender on any other loan, the lender must advance funds and then must collect any funds paid on behalf of the borrower from the borrower. This is true on any mortgage type loan that secures the property.
  The lender must protect their security in the property but after they advance funds, they send notice to the homeowner that the amount advanced must be repaid or eventually, the lender would begin a foreclosure process.
  Loans are contracts between the lender and the borrower. Any attempts to alter the terms of a contract later would put the lender at risk of being sued and the suit would be adjudicated against the lender as the party who supplied the contract.
  Furthermore, lenders are insured against loss by HUD and so they are not looking to throw borrowers out of their homes and do not lose money on the transaction due to the borrower living longer because of the mortgage insurance. In short, they have no reason to look for ways to terminate the loan early.
  Lenders and HUD both do need to be diligent though if the home is not being owner occupied, if the taxes and insurance or HOA dues are not being paid as this represents additional risks to all parties not adequately covered by the cost of the mortgage insurance.
  If borrowers live up to the agreement (they live in the home as their primary residence, they pay the property charges in a timely manner and they maintain the home in a reasonable manner), no one will seek the end the loan.
  This type of misinformation that you have here may come from embarrassment of the borrower who could not keep up with taxes and insurance, a misunderstanding of the true circumstances your friend faced and why or just plain willful ignorance or disinformation but whatever the reason, it is wrong, and we will set the record straight when we see it.
  Any time a borrower loses their home it is terrible, but it is not because the rules changed after they signed on the dotted line or due to a loophole created later because she was living too long!
  Reply to ARLO
  - Howard
    August 12th, 2021
    
    My mom is 86 years old can she take out a loan to do repairs on the Home , The roof and plumbing And yardwork for senior citizen on SSI disability are there any programs to help low income seniors for free or low-cost Too many people trying to rip her off can you help her get home repair for free or low cost People on disability
    Reply to Howard
    - ARLO™
      August 15th, 2021
      
      Hello Howard,
      
      The loan is now due and payable is mom was the last borrower on the loan and passes. The heirs now must decide to pay the loan off and that usually happens with a refinance of the loan with new financing when they wish to keep the property. If they do not wish to keep the property, they can also sell the home and keep the equity.
      The son will need to have the title transferred to himself and that will be accomplished in accordance with the laws of the state and depending on whether there are any other heirs or anyone with a claim to title.
      The reverse mortgage lender does not determine that though, typically a probate court would. I would suggest that the son contact an estate attorney to start the steps needed to obtain the title to the home and to let the lender know what he intends to do. The son also needs to know that he will be looking at either refinancing the loan or paying it off with other funds available to him if he wishes to keep the property since that loan is due and payable.
      If he does not have the funds available and is unable to qualify for a new loan, he may need to consider a sale and it is best he knows his options and start working on his plans as soon as possible.
      Reply to ARLO

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