What happens if I default on a reverse mortgage?

3 answers | Last updated: Nov 03, 2016
A fellow caregiver asked...

My mom has a reverse mortgage and has put my name as a beneficiary. If I am not able to sell it within a year and not be able to pay it off after she dies, would I be able to just hand the house to the mortgage company without any penalties?



Community Answers

Deborah nance answered...

Hi,

If the balance owing on the reverse loan is higher than the value of the home (underwater) then it is very likely that the lender will ask you if you would like to give them a "Deed in Lieu of Foreclosure". Neither you or the estate would be responsible for any shortage if the home sells for less than the balance owed.

If the Home Value is higher than the loan balance, the heirs would be able to sell the home and "keep the change" or payoff the loan with other funds and keep the home.

One thing to make sure of is that your mother has taken care of the succession of the property. Does she have a trust and was the property deeded to the trust? If she doesn't have a trust, does she at least have a will? When she passes away and the loan becomes due and payable you want to make sure that the heirs have the legal authority to sell or refinance the home.


Sjolley2 answered...

You have rights and options to repay a reverse mortgage. You can purchase the property for 95% of the appraised value or payoff the loan amount due whichever is less. The reverse mortgage lender is the first beneficiary and before you benefit the loan has to be satisfied. Sandy Jolley Reverse Mortgage Suitability and Abuse Expert


Sjolley2 answered...

Hello, You don't automatically get a year after the borrower passes. The lender most often sends a repayment letter approx. 30 days after the borrower passes. If you don't understand your rights, options, and responsibilities to respond foreclosure can being 30 days later. Sandy Jolley Reverse Mortgage Suitability and Abuse Expert