Orange County Reverse Mortgage Question - Reverse Mortgages are Non-recourse loans - what does that mean?
Recourse and non-recourse are terms used in conjunction with mortgages that describe the options/procedures that the lender has available to use when a loan is not repaid according to the loan terms.
An FHA Reverse Mortgage has specific non-recourse language in the legal documents signed at closing that the lender must adhere to.
Basically, when a reverse mortgage is declared due and payable due to the death of the borrower, the lender’s only recourse to collecting payment on the loan is from those funds that can be obtained through the sale of the property. The lender may acquire title to the property through the foreclosure process or by a “deed-in-lieu” of foreclosure from the heirs. If the market value of the property is less that the balance owed on the loan, the lender has no additional recourse to the heirs for any additional monies, meaining they cannot go to the heirs to collect any additional funds.
In June of 2013, FHA modified it’s “non recourse” feature on HECM loans to provide that if the heirs of the property wish to keep the property they are allowed to repay the lesser of “the loan balance or 95% of the appraised market value” of the property. This is a unique feature of HECM loans that came about due to heirs and surviving spouses who wished to keep the home in the family and were excluded from obtaining the property at fair market value due to “arms length transaction” requirements. In the past, if a property with a HECM loan on it went to foreclosure, only strangers, were allowed to purchase the property at value. Family members were not.
In 2013 I worked with a client here in Southern California whose mother had a reverse mortgage. Mom was to frail to continue to live in the home and had to move in with her daughter. The daughter called me to find out what her options were in regards to her mother’s reverse. I explained that if the senior no longer lived in the home then the loan would be in default and the lender could foreclose. During our conversation i learned that the seniors grandson wanted to purchase his grandmother’s property. The reverse mortgage loan balance was quite a bit higher than the current value of the property. With just a few conference calls I was able to help them start the process for the grandson to buy the property for 95% of the appraised value of the property. That was such a happy day for my client to find out that they did not have to repay the entire loan balance in order for her son to buy his grandmothers home.
If you have any questions about the non-recourse nature of reverse mortgages, I’d love to hear from you. Comment below or email me your question. Thanks for reading!
By Deborah Nance
Your Local Southern California Reverse Mortgage Professional
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iReverse Home Loans, LLC, NMLS#810502 originates reverse mortgages in Alabama, Alaska, Arizona (MB-0919584), California, Colorado, Connecticut, Florida, Illinois, Indiana, Iowa, Kansas, Louisiana, Maryland, Massachusetts, Minnesota, Mississippi, Missouri, Nevada, New Jersey, New Mexico, Ohio, Oregon (ML-5378), Pennsylvania, South Dakota, Tennessee, Texas, Utah, Vermont (1164-MB), Virginia, Washington and Wisconsin.
Important Information: Reverse Mortgages are neither "endorsed" nor "approved" by the Federal Government. The FHA (Federal Housing Administration) provides certain insurance benefits for lenders and borrowers in connection with the lender’s HECM loans; the FHA does not make or originate loans. The owner(s) retain title to the property that is the subject of the reverse mortgage until the person sells or transfers the property and is therefore responsible for paying property taxes, insurance, maintenance and related taxes. Failing to pay these amounts or failure to maintain the condition of your property may cause the reverse mortgage loan to become due immediately. A reverse mortgage is a complex loan secured by your home. Whether such mortgage makes sense for you depends on your financial situation and needs. For these reasons, we strongly recommend that you consult with a qualified independent housing counselor, family members and other trusted advisers before making this decision. This website is not from HUD or FHA and was not approved by HUD or any government agency.