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 and help keep up the property and pay living expenses. He told us if she ever needed to go to a nursing home, as long as she is on the home at least once a month they would not recall the loan. What I’m 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’m just confused about the nursing home situation now after reading this. -Amy

Hello Amy,

I can’t 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 occupancy of the home 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 CA Deed of Trust but all of 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 to me like the broker may have been counting entirely on the 12 consecutive months and not paying any 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 the principal residence of a Borrower 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 specifically defined 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 to be 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)

So there you have it.  Your question is specifically answered right in the loan documents and if the originator told you that being gone eleven months a year only to return for one was OK, that is not accurate.  A principal residence is where you spend the majority of the year and the question about being in a mental or physical health facility is also covered.

For that reason, we always advise borrowers that the property must be the location where they spend more than 6 months of the year, receive their mail and use for their banking and other purposes as their mailing address.  Again, I can’t comment on a conversation during which I was not present, but you absolutely do have to occupy the property as your primary residence with a reverse mortgage, not 1 month out of the year and if you were told differently, that was wrong.

If your mother in law moves into a home for a temporary stay, she can be absent from the home for up to 12 months before they consider that a permanent situation, otherwise, she must occupy the home the majority of the year to be considered owner-occupied.

If the lender does call the loan due and payable as a result of the property no longer being owner-occupied, I’m a little hesitant at giving you a hard time frame.  The loan would be due at that time but I think timing for the next step might depend on circumstances.  I have discussed this issue with the head of one servicing department and he says that they do grant the 12 months to dispose of the property.

I think that would also depend on whether or not the borrowers’ heirs were making a good faith effort to sell or refinance the home, the condition of the property, etc.  If it is clear that the heirs are trying to sell of refinance and pay off the loan, I know that would be the preference of the reverse mortgage lender as well.

However, if the heirs have no desire to sell the home and intend to stay in it until the last possible moment, the condition of the home is deteriorating and the lender’s security is being impaired, they may have to make a decision to move faster (and I am not saying you are – just that this might warrant different action).

If they began foreclosure proceedings immediately, it would still take many months in most states before the lender would be able to take the home back even if they started the day they first found out about the borrower’s leaving so they would consider the timing they might think the borrower(s) have already been gone and other concerns if they wait 12 months before they began any action at all, especially if they had reason to believe the heirs had no desire to leave or to sell/make arrangements to pay off the loan since it could take up to 24 months in some states to complete the process if they wait.

That’s why communication is key.

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