Question: "What happens to my house and my loan when I move out or die?"
Repayment of a reverse mortgage loan will vary with the circumstances at the time of repayment. Most situations will fall into one of the following general categories:
- If the mortgage is NOT due and payable, and the borrower(s) wants to retain ownership of the property, the debt owed on the reverse mortgage may be repaid in full at any time.
- If the mortgage is due and payable and the borrower(s) (or estate) wants to retain ownership of the property, the debt owed on the reverse mortgage must be repaid in full. Lenders may assist the borrower (or estate) in obtaining other financing to pay off the loan in full.
- Whether or not the mortgage is due and payable, the borrower(s) may, at any time, sell the property for AT LEAST the lesser of the mortgage debt or the appraised value.
- If the mortgage is due and payable and the borrower(s) (or estate) will not be keeping ownership of the property, the property may be sold for at least the lesser of the unpaid mortgage balance or 95% of the appraised value.
In any circumstance where a lender agrees to accept less than the full mortgage balance, this sale by the borrower (or the borrower’s estate) should be an “arm’s length” transaction. This means that there (a) should be no relationship between the borrower and the seller, (b) the selling price and other conditions should be the same as found in any normal, similar transaction, (c) transaction costs paid by the seller are considered customary and reasonable for the market in which the property is located, and (d) all parties involved in the sales transaction must adhere to ethical standards of conduct.
If the property is sold for less than the balance of the loan, neither the borrowers, their estates, nor their heirs will be liable for the remaining balance of the loan.
A reverse mortgage becomes due and payable when the last of the borrowers permanently leaves the home (a period of 12 consecutive months) (as well as in other situations that could be determined as default of the loan – nonpayment of hazard insurance, nonpayment of taxes, failure to maintain property in livable standards – please refer to the contract for a complete list). At this point, the borrowers, their heirs or their estate have 6 months to sell the property. If this time period is not sufficient, the sellers may apply for up to 2 additional 90 day extensions (or a total of one year from the date the loan becomes due) to allow more time to sell the property. During this time, taxes and insurance must be kept current by the borrowers or their heirs.
When the property is sold, if the proceeds of the sale exceed the balance due on the loan, the excess funds belong to the borrowers (or their estate or heirs). As stated above, if the proceeds are insufficient to repay the balance owed on the note (and the sale is within the guidelines noted above), there is no liability for the borrowers, their estate, or their heirs to repay the balance remaining.
- Charlene Turner, Mortgage Consultant & Reverse Mortgage Specialist
- http://www.tidewaterhomefunding.com/reversemortgages.html
- 757-366-8690, cturner@tidewaterhomefunding.com