WHAT HAPPENS WHEN THE PERSON WHO’S RESPONSIBLE FOR A REVERSE MORTGAGE DIES?
There are so many, many things to think about after a loved one has died. Is there a Will in place that legally states who in the family receives certain personal belongings? What about keepsakes? What about debt? How am I going to drive their car? What about their owned real estate? What about dividing the profits from future real estate transactions?
One thing that complicates the process is a reverse mortgage on the home of your loved one. Presumably, there have been many years of mortgage-free living thanks to a significant amount of equity in your loved one’s home. It is now up to you to determine what to do with it and how to handle the matter. Many heirs in this situation have absolutely no idea how to handle a reverse mortgage, let alone the implications if they fail to act swiftly. I will attempt to try to have some explanations about this herein, dealing with what comes with this type of loan and when it may become due.
The heirs must decide how to proceed with the loan balance. Is there a plan for someone else in the family to live in the house? In that case, there has to be discussions with the lender about paying off the mortgage balance.
An important issue is the fact that very few of the heirs have the necessary funds readily available to proceed with such a large financial transaction. But, you could also choose to put the home on the market. It is probably one of the safest options, although you may have some emotional and financial regrets, afterwards.
Perhaps the best initial step for heirs is to check the mail or the electronic mail to see the most recent mortgage balance statements received from the lender, and review the outstanding balance. Doing so helps you know exactly what the equity is left in the property. If you find that there is equity remaining, then you should narrow your options to either keep or sell the property. Also, the heirs may sign a Deed-in-Lieu of Foreclosure in the event that the balance exceeds the loan’s value, or that there is no interest in keeping the home within the family. This essentially gives the house back to the lender. Whatever the decision is, it is best to remain in regular communication with the lender. The last thing you want to deal with is having more heartache at a critical time in your life.
Once a reverse mortgage homeowner dies, the lender sends a letter to the heirs explaining that the loan is now due. The heirs generally have thirty days to figure out how they want to proceed, unless the original loan instrument gives them a longer period of time. That is why lenders suggest finalizing a strategy in advance.
Lenders typically give heirs six months to complete the transaction or transactions contemplated. It is important to stay on track, whether you end up selling the residence or keeping it. Again, you may find that the lender will be more helpful to you than not. This occurs in some situations, but not in every instance will the lender be cooperative and helpful towards your goal. Many heirs dread the idea of selling their loved one’s home. They might assume there is a number of additional steps in the process and would rather pursue other options. The good news is that selling a house with a reverse mortgage isn’t much different than selling any other home that has any lien or encumbrance upon it.
The first steps include confirming the amount owed on the loan and comparing it to the statements regularly mailed, and obtaining a payoff quote. Next, find a real estate agent who is ready, willing, and able to market and sell the property on an expedited basis. The proceeds from the sale should go directly to the reverse mortgage loan balance, first. Any surplus, if such exists, are for the heirs to keep.
The purpose of the reverse mortgage is to essentially allow borrowers to enjoy their golden years without having to worry about their home loan. This typically happens when a person retires with less than a large retirement account and needs money to live. If a person is at least 62 years old, owns their own home, and lives in that home as their primary residence, they may be eligible for a reverse mortgage. They would just have to continue to be responsible for the property taxes, homeowners insurance, any homeowner’s or associational dues, and general upkeep.
Do not forget, there is no such thing as free money nor free property.
