If you find yourself holding the bag for a reverse mortgage, it's important to remember that you have certain rights. For example, anytime a homeowner dies with a reverse mortgage in place, the lender must formally notify the heirs that the loan is due. Beneficiaries are given 30 days to figure out their next steps.
Provide a death certificate: You must supply the lender with a death certificate to officially confirm the borrower's passing. Present executor documents: If the deceased had a will and named an executor, the lender will require documents affirming their designation.
If there is a reverse mortgage on the property and the house is held in the individual's name (no trust), then probate is required.
The problem, say advocates, is that many senior homeowners don't understand the fine print in a reverse mortgage. Some wrongly assume the lender will pay the taxes and insurance. But fall behind on those payments or fail to maintain the home, and the lender can foreclose.
The general rule is that a mortgage may not stay in a deceased person's name.
Just like a traditional mortgage, with a HECM you are borrowing money and using your home as security for the loan. You must continue to pay for property taxes, homeowner's insurance, and make repairs needed to maintain your home or the lender can foreclose on the home.
A reverse mortgage loan becomes due and payable after your death and after the death of any coborrowers or of an eligible nonborrowing spouse. Once your heirs receive a due and payable notice from the lender, they have 30 days to buy, sell, or turn the home over to the lender to satisfy the debt.
A reverse mortgage usually must be repaid when the borrower moves out for 12 consecutive months or more, such as into a nursing home or other care facility. If the borrower is married, their spouse can remain in the home under certain conditions.
After the passing of the last surviving borrower, the reverse mortgage loan balance becomes due and payable. Your heirs can decide whether to repay the loan balance, keep the home, sell the house, and keep the equity, or walk away and let the lender dispose of the property.
According to California Probate Law, the first step in alerting creditors that someone has passed away is by completing a Notice of Administration to Creditors (form DE-157).
There is no set time for when a house needs to be cleared. It is the responsibility of the deceased's family to ensure all items are removed from the property. Once this is done, the house can be sold, with the proceeds then being distributed to all designated heirs.
Selling a house with a reverse mortgage isn't as simple as selling a home with a traditional mortgage — but it can be done with a little planning. With a reverse mortgage, you borrow against the equity in your property to receive cash upfront or a stream of monthly payments.
Lender notification
Notify the lender of the borrower's death and that you have legally inherited the house as soon as possible. You will have to provide legal documentation of both the death and inheritance.
If the end of your term is up before you pass away, then you have outlived your reverse mortgage proceeds. With a term payment plan, you reach your loan's principal limit—the maximum you can borrow—at the end of the term. After that, you won't be able to receive additional proceeds from your reverse mortgage.
A borrower can only take out a reverse mortgage on a home they own and live in for the majority of the year. If the borrower leaves the home for more than six consecutive months for a non-medical issue or 12 consecutive months for a medical issue, the loan will become due.
Heirs can inherit a home with a reverse mortgage but will be responsible for settling the debt, either by paying it off, selling the home, or turning it over to the bank.
With a reverse mortgage, the title of the home remains in the borrower's name. Proceeds from a reverse mortgage can be used as a down payment on a second home in some cases , or help supplement retirement income to cover monthly expenses.
Once a reverse mortgage homeowner dies, the lender sends a letter to the heirs explaining that the loan is due. Beneficiaries then have 30 days to figure out how they want to proceed.
The reverse mortgage lender will expect repayment when the borrower dies. This is known as a maturity event. If the home is subject to probate, the repayment process may be delayed until the probate process is complete. The loan servicer usually gives 6 months from the date of death before foreclosing on the home.
Reverse mortgage loans typically must be repaid, usually by selling the home, when the last borrower dies. However, non-borrowing spouses may be able to stay in the home if they meet certain criteria. Most reverse mortgages today are Home Equity Conversion Mortgages (HECMs).
If your reverse mortgage loan is in default and you've received a notice that the loan is “due and payable,” you may sell your home for 95 percent of its appraised value.