Reverse Mortgage Question from Riverside, CA - What happens to the reverse mortgage when I die?Will the bank just take over the house?
A lot of people are under the assumption that when the last homeowner dies, the house just reverts to the bank. That is absolutely wrong! A reverse mortgage is just a mortgage, a lien on the property and as such the lender will follow the terms set out in the deed of trust and loan agreement. Basically here's what happens - When the last borrower passes away, the loan becomes due and payable 6 months from the date of death of the last borrower. There are no monthly payments required on the loan. The home itself becomes the property of the “estate”*. Heirs will have 6 months to decide how they want to payoff the loan. Some will refinance the home, most will sell the home, and others will pay off the loan with available cash. If the heirs choose to sell the home then the reverse loan will be paid off as a part of the sale escrow/settlement and the “change” proceeds will be distributed according to the instructions. Pretty much the same as if the homeowner had passed away with a traditional mortgage.
What if the balance on the loan is higher than the value of the home? Click here to see my post on just that subject!
* Depending upon how the deceased borrower set up their affairs will determine who has final title to the home. Some parents leave their home equally to all their children, some to one child, a church, grandchildren. It is a matter of the borrowers “final affairs”. If there was no will or trust then the laws of the state will determine who inherits the home. Always consult with a legal professional.
As always - I appreciate your comments, suggestions and questions.
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.