A browser Laura P. has sent the following question(s) in the ask experts blog.
If I surrender my home to you do I owe any money?
I want to be sure I answer this correctly and your question leaves the door open a little so please give me a little room to explain myself here. The reverse mortgage itself is a non-recourse loan. This means that if you must leave and the home is not worth enough to repay the obligation, you will not have to pay the shortfall. However, when you ask do you owe any money? The technical answer is yes.
You owe the balance of the loan and if the home sells for less than the amount owed, there will be a shortage on the loan which becomes a claim to HUD. HUD pays the claim and will not come after you for the funds, but you also are not eligible for any other HUD insured programs while that shortfall is still outstanding.
The program was designed to allow borrowers to stay in their homes for the rest of their lives or until they had to move to permanent assisted living. At that point, if you could never get another HUD HECM loan program due to a paid HUD claim, but it would be a moot point upon your passing or a move to assisted living.
If however you just decided that you didn’t want to live there any longer and your choice to move created a loss to HUD, they still won’t take action to recover the loss, but they also won’t allow you to take another HUD-insured loan to add to their losses.
I also can’t possibly say that you won’t owe “any money” because the amount you owe might include other entities. If you have liens from other parties on the home or other assessments against you that are recorded against your home, giving the lender your house would not absolve you of those obligations. In fact, borrowers who wish to do a Deed in Lieu of Foreclosure, that is, give the property back to the lender rather than go through the foreclosure process, are only eligible to do so if the property is clear of further liens and encumbrances.
If the lender determines that you have other liens on the property, they would not even accept your offer to deed the home back to them, they would have to take the property through a foreclosure action to protect their interest and incur your liabilities.
Finally, I always ask borrowers contemplating such an action if you have contacted a local real estate professional. There have been so many times when borrowers have been surprised by the increases in values in their areas and they found out that by negotiating with the real estate company or using an online listing service like Redfin or Realtor.com or other such service, they could bring their selling costs down far enough to where they actually walked away with some cash in their pockets instead of with nothing.
I would strongly recommend that you compare the most probable selling price to your most recent reverse mortgage statement to make sure you aren’t leaving some cash on the table before you simply sign your home over to anyone, including your lender.