Selling an “Upside-Down” Reverse Mortgaged Home

July 7, 2021

I am still confused about debt after I sell. My wife and I have a current reverse mortgage debt of $300K on a Seattle (98146) house valued by Zillow at $310K. At time of reverse mortgage award it was appraised at $380K. We took out the reverse mortgage about 15 years ago thinking it would be our home until death.

Unfortunately, for health reasons, we can no longer live in the Seattle weather; I am 88 yrs. old (VA 100% permanent and totally disabled) and she is 82 years old. Our plan is to establish permanent residence in a house we own in Florida (33774) which is valued at $310K and a conventional $195K mortgage. This would greatly relieve our health problems.

If we have an offer from a buyer for the Seattle house of say $300K that would not be enough to pay realtor and selling costs; generally speaking we may be 10% ($30K) short from the sale. Do we have to come up with $30K from pocket to sell the house?

If we walk away from the house are we liable for the deficiency? We have had a virtual perfect credit rating for all our lives. Will this affect our chances for getting a reverse mortgage on the Florida house if we so choose? Our income is $80K/yr so that is not a problem. Any recommendations? Thanks…Tom

Hi Thomas,

The reverse mortgage is a “non-recourse debt” which means that no matter how you choose to sell the home, whether there is a shortfall in the payoff amount or not, the lender can never look to any other asset for payment of the debt.

They can only get their repayment from the home. This means that whether you walk from the home which results in a loss to the lender or sell the home and there is a shortfall, the lender cannot seek additional funds from you other than what they get from the sale of the home.

We really recommend that you contact your servicer and let them know that you must relocate and tell them the plans and your anticipated timeframe. They can usually tell you exactly what options are available.

It’s also best to talk to a knowledgeable real estate professional to determine the most probable price the home will bring and compare that to your current statement to determine what your position most likely will be. Are house prices increasing, decreasing or remaining stable? This might also influence your decision and your timing.

Now there is the question of credit. Most servicers do not even report reverse mortgage accounts to credit because there are no payments, but I cannot speak for your lender.

You may want to talk to them in advance to see what they will or will not report to credit. Also, a foreclosure action is a public record, not just a matter of a lender reporting.

Therefore, if you walk from the property and allow the lender to foreclose, even if the lender does not report a foreclosure to credit, the public records may still show the action.

Here again, you may want to work with the lender to sell the home if you are able since a short sale is not a public record (but there again, check with the lender to see what they will or will not report to credit).

Finally, about your last question about future reverse mortgages, HUD will not allow a borrower to get another reverse mortgage as long as there is a loss outstanding on a prior account.

In other words, if you had one reverse mortgage that resulted in a paid in full account, you can always get another reverse mortgage later.

However, if you have a deficiency balance on a previous reverse mortgage, you cannot obtain an additional reverse mortgage for as long as the deficiency balance remains outstanding.

Every lender is required to do a check on all potential borrowers in advance and borrowers showing a loss to the HUD fund will not clear so long as that loss is still outstanding and therefore the lender is not supposed to be able to get a case number to begin processing a reverse mortgage loan for borrowers who show an active loss to the insurance fund.

ARLO recommends these helpful resources:

America's #1 Rated Reverse Lender Celebrating 20 Years of Excellence.

TALK TO OUR HUMAN EXPERTS TOLL FREE: 800-565-1722

LAUNCH REVERSE MORTGAGE CALCULATOR

Have a Question About Reverse Mortgages?

Look no further. Michael G. Branson, our CEO, brings a wealth of knowledge directly to you. With a robust 45-year tenure in mortgage banking and 19 years dedicated solely to reverse mortgages, he's the expert you want on your side.

Post your question in the comments below and anticipate a personalized response from Mr. Branson himself, typically within one business day. He's here to illuminate all angles of reverse mortgages, ensuring you're equipped with the knowledge to make informed decisions. Take this opportunity to gain insights from a seasoned professional.

14 Comments on this Article

Susan
July 19th, 2022

Hi Arlo,

My Mom is 97. Her reverse mortgage is being turned over to HUD. When she passes, it's likely that she will owe more than the house is worth. Her children do not want the house nor the debt. What happens when she passes? Can HUD go after her remaining assets like car, checking account, etc.? Are her children responsible for her debt? Can we just let the house go to HUD, as in foreclosure?

Thank you.
Reply to Susan
- Michael Branson
  July 19th, 2022
  
  Hello Susan,
  
  A reverse mortgage is a non-recourse loan. This means that the only security the lender (or HUD) has for the debt is the property. They cannot look to any other assets of the borrower or the borrower's family for repayment of the loan.
  This means that mom can go on living in the property no matter how much the loan balance is or what the property is worth and when she passes, the only thing the lender can look to for repayment of the loan is the house itself - no cars, bank accounts, or anything.
  
  I know you said that her children do not want the house but there is something else you should know. As heirs, you also have the right to keep the home and pay the loan off for the lower of the amount owed or 95% of the current market value.
  This means that if one or all of her heirs change their mind and do want the home, even if the debt is well over the value of the home, the heir(s) can pay off the debt for 95% of the current value and keep the home. For example, if the home is worth $200,000 and mom owes $300,000 on the reverse mortgage, her heir(s) can pay the loan off entirely for $190,000 and keep the home.
  None of you are obligated to do anything and you can just let the lender or HUD foreclose on the loan and take the home by foreclosure to repay the debt if you would rather and it would have no ill effect on you whatsoever but if any of you changes their mind between now and then and does want the home, this is something to think about.
  Reply to Michael
Autumn
December 31st, 2021

If you walk away from a house whose value is less than the reverse mortgage, do you owe tax on the difference? Meaning, is the difference a "forgiven" debt?

Thanks!
Reply to Autumn
- Michael Branson
  January 11th, 2022
  
  Hello Autumn,
  
  You need to speak to your accountant to ask this question. I have heard different answers to this, and some refer to improvements in the home over the years, some talk about thresholds and some started going into other conditions and not being an accountant, I remember the laws that pertain to mortgage bankers that tell me I cannot give legal or accounting advice unless I am licensed to do so and that is what I am doing at the time.
  I wholeheartedly advise you to seek the advice of a competent accountant or financial attorney who can advise you regarding your circumstances.
  Reply to Michael
David
November 17th, 2021

Hi Arlo,

My dad passed away and owes more on the reverse mortgage than the value of the house and is the sole borrower and sole owner of the property. Do his children take on any liability for the loan?
Reply to David
- Michael Branson
  November 17th, 2021
  
  Hello David,
  
  The loan is a non-recourse loan which means that none of his heirs or even his estate can be looked to by the lender to repay the obligation. You do have another option if you would like, but are not required to take it.
  If you want to keep the home, you have the right to pay off the loan at the amount owed, or 95% or the current market value of the home, whichever is less. So even if dad owes more than the home is worth, if you want to keep the property, you can repay the loan in full for at an amount equal to 95% of the current value of the home even though that is less than what dad owes.
  Or you can walk away and owe nothing, it is your choice.
  Reply to Michael
Leilani H.
May 28th, 2020

We presently have a reverse mortgage, the value of our property has gone up significantly. Is it possible to do another reverse mortgage without first putting a regular mortgage on our home. We would like to get equity out and not let it all be eaten up by the high interest on the present reverse mortgage.
Reply to Leilani
- Michael Branson
  June 2nd, 2020
  
  Hello Leilani,
  HUD does have requirements you must meet in order to do a reverse mortgage to reverse mortgage (known as a "HECM to HECM") refinance and you see if you can qualify with our HECM refinance calculator.
  You will need your current statement as part of the qualification will depend on how much you owe on the current loan and how much you still have available to you. It is sometime much easier to call and speak to a licensed professional though because the refinances can be a bit tricky.
  If you would like to call us at (800) 565-1722, we would be happy to go over the with you with no pressure and no obligation.
  Reply to Michael
Johnnie M.
May 21st, 2020

How long can I stay in the house after I've used up the equity?
Reply to Johnnie
- Michael Branson
  May 21st, 2020
  
  Hi Johnnie,
  
  You will not receive any more money from the loan after you have used all the proceeds shown in your reverse mortgage contract, but you can still remain in the property after that time, for life, regardless of the equity as long as you continue to follow the agreements of the reverse mortgage loan.
  In other words, as long as you pay your taxes, insurance and any property assessments on time (HOA dues, etc.) and as long as you maintain the home in a reasonable manner and continue to live in the property as your primary residence, you may continue to live in the property mortgage payment-free for life regardless of the equity position.
  
  In fact, during the mortgage market and real estate melt down in 2007 - 2010, some houses lost over 50% of their value which instantly put their equity into negative territory and those borrowers were not displaced for lack of equity.
  Even though borrowers with equity lines of credit that they relied upon suddenly saw the lines disappear and lenders exit equity lending, reverse mortgage borrowers still had access to all of their reverse mortgage proceeds and continued to live in their homes regardless of the impaired equity positions due to the mortgage and values crisis.
  You do need to continue to make the property assessment payments though (taxes, insurance, HOA dues, etc.) under the terms of the loan and that is true regardless of the equity position.
  Reply to Michael
Michael Branson
January 2nd, 2020

I'm upside down on my hecm reverse mortgage and due to health reasons need to walk away. How do I go about doing that and what can they do?
Reply to Michael
- Michael Branson
  January 2nd, 2020
  
  Hello Gaylon,
  
  The loan is a non-recourse loan. The only security the lender has is the property itself. If you must leave the property and do not wish to repay the obligation or sell the home, the only recourse the lender has is to foreclose on the property.
  They can look to no other assets to seek repayment for the loan. If you do not wish to attempt to sell the home and seek a short sale, I suggest that you contact the servicer and let them know that you must vacate and ask them what you can do to send them the keys for a Deed in Lieu of Foreclosure to help the process.
  Reply to Michael
William Mackinnon
May 15th, 2017

What do mean when you say you cannot get another reverse mortgage as long as the deficiency is outstanding. How long does it stay outstanding?
Reply to William
- Michael Branson
  May 15th, 2017
  
  Hi William,
  This is an interesting question that I can't give you an exact answer. HUD makes that determination. We know that a borrower is not eligible for a minimum of 3 years from the date that the foreclosure is absolutely final including all claims and that is usually long after the foreclosure date.
  However, on every FHA insured loan, lenders have to run a borrower check through the HUD "CAIVRS" system (Credit Alert Verification Reporting System - the name was changed and they kept the same acronym even though there is no longer an "I" in the words that make up that name). Only HUD can clear a borrower in CAIVRS and so the only answer I can give you for certain is 3 years from the date of finalization of all claims (not foreclosure) and then after that date if a borrower does not clear CAIVRS, we can contact HUD to request when the borrower will be eligible - if at all depending on why the borrower is not clearing in the first place.
  Reply to Michael

America’s #1 Rated Reverse Lender

ARLO™

In your current area 100 homeowners are currently utilizing reverse mortgages to better enhance their retirement years, with 500,000 nationwide!

Great! It looks like your home value estimate is about

Please provide your estimated home value

The minimum qualifying age for a reverse mortgage is 55

Great News! Your ARLO™ analysis is ready

Selling an “Upside-Down” Reverse Mortgaged Home

Have a Question About Reverse Mortgages?

Leave a Reply to This Article