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Home / Questions / Why do reverse mortgages have second liens?

My mother got a reverse mortgage. She has passed, and now it's my headache. I found out that there is a second lien on the house. Was she supposed to get that reverse mortgage? Because they did not find it in the title search. Or so they say.

By Susan on 11.27.2018

Hello Susan,

The reverse mortgage has a first and second that is recorded so that they are protected if the loan ever must be transferred to HUD, and HUD must forward funds.  Is this the second you are referring to, or are you saying there is another loan on the property?  Because the reverse mortgage does not prohibit borrowers from obtaining another financing, finding a lender willing to place a loan behind a reverse mortgage is rare. 

But it does happen, especially for some home improvement loans.  If your mom’s reverse mortgage is in the second lien position, in other words, there is not a second but a first trust deed on the property, and the reverse is in the second lien position. It could be possible that the lender and the title company at the time did not find a loan that your mom had for whatever reason.

You need to find out if the newly discovered loan is outstanding.  It could be one of the loans that lenders never reconveyed when it was paid in full. That would be an issue for the lender when it comes to their claims with HUD, but if your mom borrowed the funds and this lien is valid, that would not mean that this new loan is now invalid because they gave her more money than they should have under the reverse mortgage program.   

Unfortunately, when lending was in “full speed ahead mode,” many lenders ran fast and sloppy and failed to record reconveyances to remove old liens after they were paid off.  This may be the case for your mom as well.  It’s not fun but depending on how old this newly discovered loan is, if mom has not made any payments for years and no one has tried to collect, chances are excellent that it was settled long ago.  Try contacting the lender and requesting them to remove the lien. 

You may even have to find out who took over servicing for an old lender if that lender is no longer in business which is often the case with old loans.  There were laws passed that require lenders to remove liens within specific periods once paid in full, and if this is an older loan that is now paid off, you have the right to demand that the lien be removed.  If you cannot make headway on your own, you may have to contact an attorney to have the title cleared, but the first step is to determine if the lien is even a valid one.