Hello Arlo, I have a few questions. 1. Can a bank force maintenance on a home or foreclose if the owner is unable to make major repairs? 2. Will the bank come after the owner for the remaining loan amount if the loan value is higher than the actual sale amount? 3. Will Banks ever take a lower payoff amount for a property that is clearly and significantly worth less than the loan value?By Dan on 11.16.2018
Every loan has provisions that the borrower must reasonably maintain the home. If the lender cannot be confident that you are at least maintaining the security for the loan, they can step in and eventually foreclose if it impairs their security. They would not do it lightly, though; no lender wants to become a property manager and will only step in if necessary.
A reverse mortgage is a non-recourse loan that means you can never owe more than the property is worth, and the lender can never seek repayment from the borrower’s or heirs’ other assets. Finally, the loan does have provisions for accepting a payoff for less than the total amount owed.
For example, if you pass and your heirs wish to keep the home, but it is not worth the amount left due on the loan, HUD allows them to keep the house and pay off the balance at 95% of the current value if that is less than the amount owed. However, if you are living in the home and you decide you want to pay off the loan and the balance is higher, HUD will not agree to a short payoff at that time.
If you pass or need to go to a permanent assisted living, etc., the timing of the move is beyond your control. If you are selling the property by choice or want to pay off the loan for convenience, then HUD would require full repayment. Otherwise, if you wait, increases in value may eliminate any shortfall. If you walk away from home, causing a loss to HUD, the house is still the only recourse the lender must repay the obligation.
Still, you would not be eligible for future HUD/government-insured financing, and there could be tax ramifications. I strongly encourage you to speak to your tax professional to get that information, as I cannot give you tax or legal advice.