How does the last borrower leaving the home affect the reverse mortgage?
Handling the estate of a parent or loved one is often a very emotional and stressful time for everyone involved. With everything else going on, dealing with the reverse mortgage servicer is often not the first thing on the list. Even though that may be the case, contacting the servicing company via the phone number on the statement that comes in the mail each month should be one of the first things done after the last borrower leaves the home due to death or for a consecutive 12 months due to residing elsewhere for any reason.
Whether you are considered a non-borrowing surviving spouse, a surviving spouse who is not on the loan whatsoever or an heir; there are certain things you will need to do and decisions you will have to make. Whether you are deciding to keep the home or sell it, the servicer will want to know your plans with the home as soon as possible.
When the servicer is notified, they will want the documents that state who is in charge of the estate and the death certificate for their files and they will want to know what your plans are pertaining to the home.
These are the general decisions that must be made at some point:
- Do you want to keep the home? In this situation, the loan must be paid in full, but never more than 95% of the property’s appraised value. Unless you are a non borrowing spouse; In which case you will retain the home as long as the terms of the loan are met like paying the property taxes, homeowners insurance and upkeep of the home.
- Do you want to sell? If the home is worth more than the loan amount, the home may be sold. The loan balance will need to be paid in full and the heirs will get to keep the remainder of any proceeds from the sale.
- What if the home value is less than the loan balance? Since this is an FHA insured non recourse loan, the heirs will never be held responsible for the loan balance. The heirs can walk away which will result in foreclosure and alleviates any responsibility for paying off the loan.
After the servicer is notified of the last borrower leaving the home, the timeline can vary case by case. Here is a general idea of a rough timeline:
30 days -
Within 30 days of receiving notice of the death of the borrower, the servicing co. will send a notice to the estate showing the loan due, along with information on what to do with the reverse mortgage after death.
60 days -
Within a month of receiving the due and payable notice, the estate must respond to the notice with a letter of intent as to their plans with the property. They like this information in writing. The surviving, non-borrowing spouse may apply for a deferral if they meet the requirements.
2-6 months -
During this time, the estate can sell the house, or otherwise satisfy the loan. Interest on the loan will continue to accrue during this time.
6 months -
Within six months of the death of the last borrower, the loan servicer might begin foreclosure proceedings if someone does not pay the loan amount or contact them to make arrangements. If a deferral has been issued, then the foreclosure proceedings may begin six months after the end of the deferral, generally speaking.
12 months -
The estate may apply for two extensions in 3-month intervals. This gives them up to 12 months from the death of the last borrower to sell the property or satisfy the loan. Again, these are just rough guidelines and this is not always the case.
Are you the spouse of someone who had a Reverse Mortgage?
When one spouse dies, but the surviving spouse is a borrower on the reverse mortgage, the terms of the loan do not change. Also, the surviving spouse may continue to live in the house as long as the loan terms continue to be met. There are other loan specifics that might be affected by the death of the borrower like access to any remaining line of credit so it is very important to contact the servicer as soon as possible to inquire how the death has affected the loan.
If the surviving spouse is not a borrower, then the servicer will send a letter stating the requirements for a deferral period before the loan is due and payable. If the spouse doesn’t meet the requirements of the deferral period, they could get an opportunity to fix the issues and reapply for the deferral. Otherwise, a notice that the loan is due and payable might be issued.
If you have received a due and payable notice, these are the general options:
- Sell the home.
- Hand the property over to the lender.
- Pay off the loan amount and keep the home.
Are you the heir of a property encumbered with a Reverse Mortgage?
One of the first things that needs to be done is to contact the loan servicing company via the phone number on the monthly statement that is mailed to the home each month. Let the servicing company know about the death and they will offer you some guidance on the next steps.
You have a few options depending on your plans. The general options are:
-To keep the home.
- To keep the property, the loan must be paid off. The cost to pay off the loan is never more than 95% of the appraised value of the home, even if the loan amount is more.
-To walk away.
- If the home isn’t worth as much as the loan, the heirs may choose to sign a
deed-in-lieu of foreclosure. This turns the house over to the lender, who will sell it to get their money back. If the loan balance exceeds the home’s value, then you won’t oweanything additional by choosing this option.
-To sell the home.
- If the property is worth more than the amount owed, the heirs may choose to sell the home and keep the difference.
No matter your plans, the most important thing is to communicate fully and timely with the loan servicer about your decision. You may have up to a year to sell the home but if you do not keep open lines of communication with the servicer, they may begin foreclosure proceedings within six months.
Other information to be considered:
- Not all reverse mortgages are the same and there have been several changes in loan terms over the years. Please reach out to a trusted estate attorney to help with your decision making.
- No matter your plans, make sure the property taxes and homeowners insurance are paid on time for the full duration of the reverse mortgage and the home and property maintenance is taken care of. Even if the borrower has passed, it is imperative these loan terms continue to be met until the reverse mortgage is satisfied.
- Sometimes, the after death plans are unclear. If there are no legally established heirs or estate executor the property could become a theoretical no man’s land. This leads to years of headaches and issues that could have been avoided if a plan had been placed before the borrowers death. If the property has issues, please contact the servicing company for direction and possibly an attorney as
Written by Northwest Reverse Mortgage NMLS 183-4787
This blog is meant for informational purposes only and should not be considered
as legal advice. Please contact us at 503-427-1667 with any questions.