Borrowers often encounter confusion as they approach the crucial moment of signing their final documents for a reverse mortgage.  They are introduced to a First and Second Trust Deed Note and Two Deeds of Trust (or mortgage, depending on the state laws applicable to the property).

Compounding the complexity, the amounts specified on the Note and Deed of Trust can be substantially higher than the sum the borrowers agreed to borrow.  This discrepancy has led some borrowers to hesitate or even refuse to sign the documents at closing, primarily because they were not previously informed about the existence of multiple documents and the variances in the amounts stated.

In this article, we aim to shed light on the reasons behind the requirement for two deeds and two notes in the reverse mortgage process. Understanding the necessity for multiple documents and the rationale behind the differing amounts can significantly ease the concerns of borrowers.

Continue reading to explore the intricacies of these requirements and how they serve to protect the interests of all parties involved in a reverse mortgage transaction.

Why Reverse Mortgages Have 2 Notes & 2 Trust Deeds

How Reverse Mortgages Are Recorded

When reading the manual on reverse mortgages, HUD explains that every reverse mortgage shall have both a First and Second Note, and while the borrower does not have to receive a copy of the Second Note before closing, its existence and relationship should be fully explained to the borrower (and thus this explanation to you).

The Second Note is not a separate loan encumbering the property as a traditional first and second loan.  Instead, it secures any payments made to the borrower by HUD on their reverse mortgage.  It “picks up,” if you will, where the payments made to the borrower or on the borrower’s behalf by the lender left off and those made by HUD start.

HUD Uses the Second Note For Your Protection

HUD can step into a reverse mortgage in a couple of instances and may advance funds on the part of the borrower.  If the lender cannot make payments due to the borrower under the Loan Agreement, then HUD would step in and ensure that the borrower is paid.

In the case of a lender who becomes insolvent when borrowers depend on their reverse mortgage funds, HUD steps in and pays those funds to borrowers.  This is one of the reasons why reverse mortgages have insurance.

HUD requires lenders to assign loans to them when the Loan to Value reaches 95%.  From then on, HUD would make all future advances to the borrowers and may sometimes have to advance funds for taxes or insurance.

The second Note and Deed of Trust ensure that HUD’s position is covered under these circumstances, allowing them to continue to make any necessary advances to borrowers without the security they could not make.

How the HECM Note & Deed are Calculated

Next is the issue of the loan amount listed on the documents.  HUD does not require a maximum mortgage amount to be stated on the mortgage because no payments are required.  Many reverse mortgages have growth features in the lines available, and the balance owed increases as borrowers make no payments.

However, most states require an amount to be stated on the documents, leading to HUD’s dilemma.  They cannot simply state the beginning balance as is the case with a typically amortizing loan or where a borrower’s borrowing power may increase with a growth rate on the line of credit or no amounts higher than this balance could be advanced to or on behalf of the borrower.

In cases such as tenure loans (payments for life) where borrowers continue to live in the home longer than the anticipated time frame, this would cause an abrupt stoppage of the payments, which would not be suitable for borrowers who depended on those monthly payments to live.  Also, as is the case with the line of credit that grows over time on the unused portion, HUD states that a maximum amount stated as the beginning balance would prevent borrowers from using the growth balance of the line.

For this reason, the amount you will see on the Note and Deed (or Mortgage) will equal 150% of the Maximum Claim Amount, the total value of the property, or the HECM Lending Limit, whichever is less.

For example, if your home is worth $200,000, then the amount on the Deed would be $300,000 ($200,000 x 150%).  If your home is worth $800,000, the amount on the Deed would currently be $1,200,000, and if your home value were to be at or above the current lending limit of $1,149,825, the amount on the deed would be $1,724,737.50.

Bottom Line: You Only Owe What You Borrow

This concept is the same as a Home Equity Line of Credit (HELOC).  When you close the loan, you sign documents for the entire amount.  Still, you only have to repay the amount you borrow plus interest on that amount, not the entire line, if you use only some of it.  The big difference is that with the reverse mortgage, there is an additional Note and Deed in case HUD also has to advance funds.

But it’s still the same – you only repay what you borrow plus the fees and interest that you financed (and any funds that the lender or HUD have to advance on your behalf, such as taxes, insurance, etc., if those are not paid in a timely manner).

So these are the things you need to know about reverse mortgage documents before it’s time to sign:

  1. There will be 2 Notes and 2 Deeds of Trust (or Mortgages).
  2. They do not secure a First and Second Lien.  The second Note and Deed only secure any advances HUD may have to make to you after the lender stops and HUD begins.
  3. The loan amount on the documents will either be blank, total 150% of your property value or 150% of the HUD Lending Limit, whichever is less, depending on the state in which you live and their laws affecting the mortgage documents, but if an amount is stated, it will be higher than the amount of cash you are receiving at the close.

Regardless of the amount stated on the loan documents, just like HELOC documents, you only owe what you borrow plus applicable interest, mortgage insurance, financing fees, and any amounts the lender or HUD has to advance on your behalf.

You will receive a sample copy of the Note, the Deed of Trust, or the Mortgage and Security Agreement in your loan package.  If you have any questions, please do not hesitate to ask so that you are not surprised at your closing.

Top FAQs


Why are there two deeds of trust for a reverse mortgage?

There are Two Deeds and Two Notes to cover both the lender and any amounts, if any, that HUD must forward on behalf of the borrower.

Who holds the Deed on a reverse mortgage?

The title or the “Deed” on a reverse mortgage is just like any other property with a loan or lien against the property.  The borrower holds the title, so the Deed or title is in the borrower’s name.  Still, a Deed of Trust or Mortgage (depending on the instrument used in that state) secures a lien on the property.

Does a reverse mortgage have a note?

There are two Notes with a reverse mortgage loan (just as there are two Deeds of Trust or Mortgages).  The first Note is to the lender, and the second is to HUD.  The only amounts that would begin to accrue to the Second Note would be for any amount that HUD was required to advance on the borrower’s behalf.  This could include but is not limited to any taxes or insurance HUD needed to advance that the borrower did not pay or any fees accrued because of servicing the loan if the borrower defaulted after the loan was assigned HUD, etc.

Can you deed transfer if you have a reverse mortgage?

Borrowers with a reverse mortgage can add borrowers to the title or remove an original borrower from the title at any time.  Keep the reverse mortgage active and in place if at least one original borrower on the loan remains on title and lives in the property as their primary residence.  Borrowers can sell the home or Deed it to anyone they choose (i.e., family) because it is always their property.  Still, the lender will call the loan due and payable if they are no longer on the title and live in the home as their primary residence.  So, while the borrower can sell the home at any time and pay the loan in full without penalty, once the property is sold or the borrower is no longer living in the home as their primary residence, the loan becomes due and payable in full at that time.

Does a reverse mortgage show on the title?

A reverse mortgage is like every other loan.  The loan is recorded with the county recorder’s office and does appear on the title.

Can you get a second mortgage lien after getting a reverse mortgage?

There is no restriction against secondary financing from the reverse mortgage loan.  However, because the balance of the reverse mortgage grows as you borrow funds and make no payments on the loan, most lenders are hesitant to place additional liens behind reverse mortgages.  If you find a lender willing to go behind a reverse mortgage in 2nd position, the reverse mortgage terms do not prohibit the financing.

Is there a time limit from when the deed was put in my name before getting a reverse mortgage?

No, if you own the home and it is your primary residence, there is no minimum time limit from when the deed was put in your name before you can be approved for a reverse mortgage.

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