Hello All Reverse,
I have read the information that was provided to the website and the questions and responses. I am concerned that there is some contradictory information here and would like you to offer some clarification which will help me better understand what happens to my mothers home and the possible sale to grandchildren.
Since the text on this website states in one paragraph that the loan is non-recourse and the balance is not due to the lender by the heirs of the estate for a shortfall on the reverse mortgage (appraised value of the home vs the loan amount), if the house is sold to a third party.
However, in the same paragraph and in brackets it states that there are no restrictions on family members and that the home can be sold to family members at 95% of the appraised value. I have also noted that in some of your responses you have mentioned that grandchildren and heirs can purchase the home at 95% of the appraised value.
Here is my situation: My mother passed away in August 2012 with a reverse mortgage balance of 230k. The original mortgage could go as far as approximately 270k. I have kept in contact with the lender and have rented the home, kept up the property taxes and made improvements on the home and kept up the property.
I cannot afford to purchase the home but two of the heirs (grandchildren) are in the process of gaining loans to purchase the property at 95% of the lenders appraisal of 140k. Due to the contradicting verbiage and due to the responses given to others questions above I am not sure if this home can or cannot be sold to my mothers grandchildren. Could you help clarify this for me.
Best Regards, Don H.
Here is the exact verbiage in the Note and Deed of Trust for the HUD HECM reverse mortgage with regard to no Deficiency Judgment:
Deed of Trust:
This is the verbiage in the HUD manual 4235.1 which is the manual for reverse mortgages:
What it all boils down to is that the Note, Deed and Security Agreement that the borrower has signed, the contracts for the loan if you will, all guarantee that there is no personal liability for the loan. Since there is no personal liability, HUD and the lender both can only look to the property for repayment of the debt.
Therefore, HUD has realizes that a sale in the marketplace is going to cost them money and they will not be able to sell the property for above market value and that the costs will be at least 5% so if the family sells the home, they can pay the loan off for 95% of the current value of the property or the balance owed, whichever is less.
HUD makes no differentiation in anything I can find, they only talk about the right to sell the home for a minimum of 95% of the current appraised value, there is no restriction about to whom the home is sold.
Now having said all that, you did bring up another issue here that I would just like to touch on. The Deed of Trust also contains provisions for Assignment of Rents (and you mentioned that you rented the property). You do need to keep this in mind when dealing with the lender and HUD:
The sooner you can complete the sale the better as all rents should be going to the lender at this point.
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