What happens with a reverse mortgage when the homeowner dies?
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What happens with a reverse mortgage when the homeowner dies?
My father is terminally ill and has a reverse mortgage on his home. My sisters and I are trying to understand how this is settled. The balance on the loan is currently more than the house is likely to sell for. The house is in need of significant repairs on the roof and basement. We are trying to understand whether or not the finance company will expect the heirs to pay the remaining balance on the loan or settle it out of his estate. Everything I can find online about HUD/FHA backed reverse mortgages seems to state that the repayment
amount cannot exceed 95% of the homes appraised value at the time of repayment. Is this correct, even if the home is in need of work? Also, another option listed is deed in lieu of foreclosure. Will in lieu of foreclosure come after his other assets? In either case, would this satisfy the loan regardless of the balance remaining?
Asked on January 6, 2019 under Real Estate Law, Tennessee
Answers:
SJZ, Member, New York Bar / FreeAdvice Contributing Attorney
Answered 5 years ago | Contributor
The heirs do not need to pay out of pocket (from their own money or assets), unless they cosigned or guaranteed the mortgage. However, the lender can, at their option 1) foreclose on the home if it is not paid; and/or 2) sue the estate for any unpaid balance (or any unpaid balance left after foreclosing and selling the home at foreclosure sale/auction): thus the home and/or other estate assets, but not the personal assets of the heirs, can be used to satisfy the loan.
A deed-in-lieu can be offered to the lender to settle the matter, but they have to voluntarily accept it: you cannot deed property against the recipients will. A deed in lieu will satisfy the loan IF there is a written agreement with the lender that receiving the property satisfies the loan: there must. be a written agreement (entered into before the property is deeded over) to this effect.
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