In a reverse mortgage what are the responsibilities of the heirs?
Most importantly, right now before they're gone - ask your parents if they have a trust or a will. Consult with a qualified attorney to find out your responsibilites if you are named as successor trustee or executor.
Once they're gone - You can find some direction from HUD and from the actual loan documents and agreements, but let me answer this as the pending executor for my own parents who happen to have a reverse mortgage. I’m not giving you any kind of legal advice, just saying what I’m planning to do.
My parents do have a Trust and a Will, so I know that we will have the proper authority to legally sell or refinance the home. Reverse mortgage servicers reach out to borrowers at a minimum of once per year to make sure they are still living in the property and they also rely on reporting agencies that monitor deaths. So - I will be calling the lender very soon after my parents are gone to let them know that they have “graduated”.
I will also be looking to see if there is equity in the property, meaning - is the balance on the reverse less than the value. That will be easy to do because every month the lender sends them a statement showing the current balance. I will use my contacts in the real estate world to help me to determine the value of the home.
If there is money there, then I will let the lender know that we are going to sell the house and they will be paid off at closing. If the house takes awhile to sell, I will take advantage of the allowable extensions to the foreclosure by writing the lender and requesting it.
If there is no equity, well, then I will let the lender know that too and ask them if they would prefer a “Deed in lieu of foreclosure” or would they just like to foreclose? They will want the deed, as it is less costly and time consuming, and so will I.
Here’s the rub - Many reverse mortgage borrowers will die without a will - then what? If that happens in your parents case, who has ownership of the property? I don’t know. I imagine you would need to talk to a probate attorney to find out who will have the power and authority to transer title, and how that is done. A judge’s order may be required. In anycase, without proper end of life and estate planning on your parents part - you may not have any authority to sign a listing agreement, a deed, or any other document on behalf of the estate. You will want to seek advice from a qualified, knowledgeable attorney.
One more note - direct from FHA - prior to obtaining a reverse mortgage:
This blog reflects only my thoughts and opinions and not necessarily those of my employer.
Deborah Nance
Your Local Southern California Reverse Mortgage Professional
Good Morning Deborah, great input on an issue we are seeing more of with falling home prices.
Thanks for your comment Dan, I hear from kids/heirs all the time about "what now" because their parent has passed away and had a reverse mortgage.
Deborah: Got here through Dan's re-blog. This is a very valuable post. For seniors having a reverse mortgage is one way to be able to afford staying in the house. The inheritors, if there are any, and especially the exectors need to know the options available with the mortgage. Good article.
Hi Valerie, Thank you for the comment on my article. I know that reverse mortgages are available in Canada, but do not know any of their guidelines and terms. Deb
Deborah,
If parents have a reverse mortgage, this is definitely food for thought. My parents had been advised not to go that route, that there were better ways to handle their financial needs so don't have to worry about what to do with a reverse mortgage personally.
Judi, thats so great theat they do not need to use a reverse mortgage to handle their financial needs. I know that my parents have been very careful about using theirs. The originall got it to set up the line of credit in order to have funds available should something happen to my stepdad. As a second wife, my mom would not be entitled to any of his pension should he pass away. So their answer was a reverse mortgage. Like most guys he wanted to protect her. In the event he should pass away, she will begin to take draws from the reverse mortgage line of credit (which has grown over time!) in order to replace as much of his income as she needs. The deciding factor though was that she is living in her dream home and NEVER wants to leave it. I think that is the most important criteria. Is this the home the senior is planning to remain in for the rest of their life?
Thanks for your comment and sorry about the rambling response. Have a great day!