Reverse mortgages are sold to seniors as a type of free money. As older people turn to home equity to pay the bills in a long retirement, their children may have questions about what happens to the reverse mortgage if one (or both) parents die. At that point, heirs need to act quickly.
Here’s what happens after the “last person in the house” dies:
• Heirs receive a letter from the mortgage loan servicing company. The letter explains the rules and asks you to declare what you plan to do about the outstanding loan and the property.
• It’s important to answer the letter right away. If you’re uncertain about what to say in the letter, consult an experienced reverse mortgage attorney in New Jersey to maintain communications with the servicer.
• To keep the property, you must repay the mortgage loan. You must pay up to 95 percent of the property appraised value (even if the balance of the loan is higher than that number).
• Real estate markets have been buoyant in recent years. The home’s value may be greater than the loan amount. If that’s the case, you have the option to sell the property and pocket the difference.
• If the loan is greater than the property’s value and you don’t want to keep the home, you may execute a “deed-in-lieu of foreclosure” to put the house back to the lender.
Most reverse mortgages are “home equity conversion” mortgages (HECMs) insured by the U.S. Federal Housing Administration (FHA). Certain rules apply to HECMS. In a reverse mortgage HECM:
• The reverse mortgage balance is automatically due and payable (technically) when the last borrower dies.
• Since the borrower’s surviving heirs can’t refinance and/or sell the property to satisfy the reverse mortgage debt, it’s important to respond to the mortgage servicer letter right away.
Although many heirs feel the loan servicer’s letter is a bit harsh and insensitive, it’s intended to prompt the heirs to communicate their intentions as quickly as possible about their plans regarding the reverse mortgage loan and the ultimate disposition of the property.
If you’ve recently inherited a home with a reverse mortgage obligation from a deceased parent, you must take action immediately. Contact The Law Office of Joel R. Spivack if you have questions or concerns about communicating with the loan servicer about a reverse mortgage loan at 856-861-6203.
The articles on this blog are for informative purposes only and are no substitute for legal advice or an attorney/client relationship. If you are seeking legal advice, please contact our law firm directly.