We live with my mother-in-law and were present throughout the process of her getting a reverse mortgage. The broker is fully aware that we live there with her, help keep up the property, and pay living expenses. He told us if she ever needed to go to a nursing home, if she was in the home at least once a month, they would not recall the loan. What I am reading here seems contradictory to what we were told. We were also told about having 12 months to sell or purchase the property upon death. I am just confused about the nursing home situation now after reading this. -Amy
Occupancy Requirements in Reverse Mortgage Loan Agreement
I cannot comment on what was said or not said by another originator and was not there for the conversation, but I have always been very honest with my borrowers and their families.
The loan documents make the legal agreement between the borrower and the lender. The home’s occupancy as the borrower’s principal residence is outlined as a requirement in the three main legal documents – the Note, the Deed of Trust or Mortgage (depending on which instrument your state uses), and the Security Agreement.
I am looking specifically at a Deed of Trust, but all the states have similar wording on their Deeds and Mortgages, and they define the property as no longer being the principal residence when:
The property ceases to be the principal residence of a Borrower for reasons other than death, and the property is not the principal residence of at least one other borrower; or for a period of longer than twelve (12) consecutive months, a Borrower fails to occupy the property because of physical or mental illness and the property is not the principal residence or at least one other borrower.
It sounds like the broker may have been counting entirely on the 12 consecutive months and not paying attention to the “Principal Residence” requirement. The Promissory Note contains similar language in that it states that the lender may require immediate repayment in full if:
The property ceases to be a Borrower’s principal residence for reasons other than death, and the property is not the principal of at least one other borrower.
So, what qualifies as the “Principal Residence”? That is defined explicitly in the Security Agreement. Item 1.8 states:
Principal residence means the dwelling where the borrower shall maintain his or her permanent place of abode and typically spends the majority of the calendar year. A person may have only one principal residence at a time. The property shall be considered the Principal Residence of any Borrower who is temporarily or permanently in a health care institution as long as the property is the Principal Residence of at least one other Borrower who is not in a health care institution. (emphasis added)
Definition of Principal Residence
A principal residence is the location where an individual spends most of the year. This includes considerations for periods spent in mental or physical health facilities. The specifics of what constitutes a principal residence are typically outlined in loan documents.
Occupancy Requirements for Reverse Mortgages
For a property to qualify for a reverse mortgage, it must be the borrower’s primary residence, not just occupied for one month out of the year. If advised otherwise, such information is erroneous.
Temporary Absence and Owner-Occupancy
In cases where an individual, such as a mother-in-law, temporarily moves into a nursing home, they can be absent for up to 12 months. Beyond this period, the absence may be considered permanent, and the home must be occupied most of the year to maintain its status as owner-occupied.
Loan Repayment and Property Disposal Time Frame
If a lender calls a loan due because the property is no longer owner-occupied, there is no specific hard time frame for repayment. The process often depends on various factors, including efforts to sell or refinance the home and the property’s condition. About 12 months are typically given to dispose of the property, though this can vary.
Heirs’ Responsibility and Lender’s Preference
The lender generally prefers this if the borrower’s heirs are actively trying to sell or refinance the property. However, if the heirs show no intention to sell and the property’s condition deteriorates, the lender may expedite their actions.
Foreclosure Timelines and Communication Importance
Foreclosure proceedings, if initiated, can take many months. The duration often depends on state laws and the specific circumstances, such as the period the borrower has been absent and the heirs’ intentions. Effective communication with the lender is crucial in these scenarios to potentially extend time frames and find agreeable solutions.
Do you have to live in a home with a reverse mortgage?
What happens if I move out of my home while I have a reverse mortgage?
How long can I be away from the property when I have a reverse mortgage?
How long can my heir live on the property after I die?
How quickly do I move into the property after buying it with a reverse mortgage?
If you have a reverse mortgage, can a relative live with you?
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