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Hello Arlo, Parents passed and the home is free and clear. The executor was allowed to live in the home for 5 years and then has to buy or sell so the remaining siblings get their share. If after year 5 can all siblings do a quit claim deed passing ownership to them and then take out a reverse mortgage to pay everyone their fair share of the estate?

By Leslie on 02.01.2019

Hi Leslie,

If the person living in the home was on title and both the house and that individual met the requirements for the loan (income, credit, age, etc.), she could get the reverse mortgage and then use the funds for whatever purpose she chooses.  My Suggestion to you, though, if you determine this is the way you want to proceed, is for the other siblings to consider getting together and granting the property to the sibling that will retain ownership while preparing a Note and recording a Deed of Trust for the amount owed to the other siblings in advance so that the reverse mortgage may be taken out to pay off the existing loan. 

In this manner, the siblings would be paid from the loan proceeds at closing, and the reverse mortgage amount would be available then.  If the property is free and clear when the reverse mortgage is originated, HUD will only allow 60% of the Principal Limit (the eligible loan funds) to be taken at the start of the loan.  However, the total loan amount is available from the beginning if the funds are used to pay off an existing loan.  Also, if all siblings' names are still on the title to the property at the time the loan begins, each one would have to attend counseling as well.  It is much cleaner if the siblings can deed the home to the one living in the property with a Note and Deed that would be paid at the close of the reverse mortgage.

There are a couple of things I caution you on, however.  Firstly, you must trust one another that the sibling living in the home will complete the loan!  We never know what can happen, and accidents, death, other family members, etc., all have a way of spoiling the best-laid plans. I suggest you obtain legal counsel and let the attorney set up the financing so that if the reverse mortgage is never completed, the loan becomes due within a set period so that everyone is protected.   

Next, ensure that the funds your sibling who will reside in the home will receive from the reverse mortgage will meet all your needs.  The reverse mortgage will only supply 50% or maybe even less of the home's value, depending on the individual's age. If five siblings split the home equally, the reverse mortgage will not give you 80% of the home’s value (the remaining four siblings’ shares with an equal division).  Ensure the expected loan proceeds meet your needs before you build your plan using this as your ultimate end. 

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