GUIDELINES FOR PAYING OFF A REVERSE MORTGAGE

GUIDELINES FOR PAYING OFF A REVERSE MORTGAGE

 

WHEN IS A REVERSE MORTGAGE DUE AND PAYABLE?

  • When the last borrower on title permanently moves out of the home as their primary residence
    This includes when the last borrower on title:
    • Passes away
    • Moves permanently to a nursing home or another primary residence
    • Sells the property
  • When borrower fails to pay property taxes, hazard insurance, or does not properly maintain the home.The lender may call the loan due; however, generally the lender will work with the borrower to correct the deficiency.Foreclosure is the last resort that either HUD or the Lender want to take.
  • When the youngest borrower celebrates their 150th birthday the loan is due
     

    WHY THERE IS NO PERSONAL LIABILITY FOR PAYING OFF A REVERSE MORTGAGE

  • A Reverse Mortgage is a “non-recourse” loan:
    • No personal liability either to the borrower or the heirs.
    • The property alone satisfies the loan.
    • Other assets are not at risk.
       

      WHAT ARE THE OPTIONS TO PAYING OFF A REVERSE MORTGAGE?

  • Sell the home to a third party
  • A family member acquires financing to pay off loan in order to keep the home
  • If family member is over 62, they might get a reverse mortgage on their own home to pay off the borrower’s reverse mortgage.
  • If the home is worth less than the loan balance, the borrower/estate must contact the servicer to make arrangements to pay the loan at 95% of the current appraised value.The loan servicer will order an FHA appraisal within 30 days.The borrower/estate must make sure the appraiser has access to home.
    • CRITICAL POINT: Do not put heirs on title with the borrower! Per FHA regulations, if a person is already on title, they cannot buy the home at 95% of the current appraised value when the loan exceeds the value of the property.  Rather, they would have to pay the “full balance owed” in order to keep the property.
    • The FHA appraisal can be used for a “short sale” or in the event a family member wishes to provide funds to pay off at 95% of the appraised value and keep the home.
  • The borrower or the estate can do a “Deed in Lieu of Foreclosure” if they prefer.In this case the borrower or estate would sign certain required documents; and clean out the property of personal items, and give the keys to the lender’s representative.
  • Walk away, doing nothing, and allow the lender to foreclose.
     

    GOOD COMMUNICATION IS CRITICAL IN ORDER TO ESTABLISH THE MAXIMUM AVAILABLE TIMELINE IN WHICH TO PAY OFF THE REVERSE MORTGAGE

     
    Once the last borrower on title permanently moves out the CLOCK STARTS TICKING.  Communication is key to making this a smooth process for the borrower/family members or concerned parties.
     
    Contact the Loan Servicer (where the monthly statements come from) within the first 30 days following borrower’s death or permanently moving out of the home.  THE TIMELINE BEGINS ON THE ACTUAL DATE OF DEATH OR MOVE-OUT DAY; NOT THE DATE THE SERVICER IS NOTIFIED. NOTE: Loan Servicers regularly check public records and will find out if the borrower is no longer occupying their home.
  • When the borrower dies:  a “Condolence Letter” is mailed from the servicer when they discover the borrower has passed.  This letter seems rather insensitive and harsh; as it states that the loan is due and payable within 30 days. 
     
  • When the borrower permanently moves out:  a “Payoff Demand Letter” will be sent from the loan servicer.  The letter states the loan is due and payable within 30 days. 
     
    IN BOTH CASES, by notifying the loan servicer directly the borrower/estate will be given a list of payoff requirements with an appropriate timeline.  The loan servicer works on behalf of the lender and according to HUD guidelines; and are required to send these letters and to make sure that the loan is paid off in a timely manner.
     
  • Within 30 days of receipt of the “Condolence Letter or Payoff Demand Letter” requesting the loan be paid in full, the borrower/estate must respond with a written “Intent to Satisfy the Loan” letter. This is where the choice is made on what to do with the property.
  • Within 60 days
    • The loan servicer must receive copies of the applicable documentation, i.e. death certificate; copies of probate proceedings, appointment of executor, administrator or personal representative of the borrower’s estate; copies of the family trust, etc.
    • The home has to be on the market, if a sale has been chosen as the way to satisfy the loan. A copy of the listing agreement must be provided to the servicer.
    • A copy of “Loan Approval” must be provided to the servicer, if new financing will pay off the loan balance instead of selling the property.
       

      HOW LONG DOES IT TAKE AND WHAT IS THE CONCLUSION?

       
      When the borrower/estate maintains good communication with the Loan Servicer, and responds promptly to their written requests, the process will be completed smoothly and in due course.  The borrower/estate will initially be given 180 days to complete the process; and up to two 3-month extensions if necessary.  A maximum of 1 year may be available to pay off the reverse mortgage. 
       
      IF THE SERVICER DOES NOT RECEIVE DOCUMENTATION, THE TIMELINE IS NOT MET, OR IS OTHERWISE IGNORED, THE SERVICER IS REQUIRED BY HUD GUIDELINES TO FORECLOSE ON THE PROPERTY.
       
      Reverse Mortgages provide tremendous financial benefits to homeowners who prefer to stay in their homes for as long as they are able to do so. When it’s time to pay off the loan, following these guidelines can help the borrower or their estate reach a successful conclusion. They might receive cash equity in their pocket through the sale of the property, or decide to walk away with no financial obligation, or keep the home in the family by refinancing the loan.
 

For additional information or to review your circumstances and how the above may apply in you or your family's situation, please reach out to me directly at (619) 294-9820

John Correll
Reverse Mortgage Specialist

NMLS/CA DBO# 1004396


 


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