Table of Contents
Ultimate Guide to Reverse Mortgage Foreclosure Process
If a senior with a reverse mortgage cannot pay their property taxes, they could lose their house. If your spouse has taken out a reverse-mortgage without including you in terms of the loans or the title, there may be some legal recourse available.
What Is a Reverse Mortgage Foreclosure?
A reverse mortgage is a type of loan where you use the value of your house as collateral. Retirees typically use reverse mortgages to pay off their debts, so they can live comfortably without worrying about paying bills.
A reverse mortgage loan can be used to supplement your retirement savings so that you can live comfortably without having to rely on Social Security benefits.
The monthly payment might be reduced or eliminated if the house isn’t entirely financed. Or your bank could use some of the proceeds from the reverse loan to pay down the remaining principal balance.
Federal Housing Administration (FHA)-backed mortgages are popular among homebuyers because government-insured loans support them. If you don’t want to lose your property because of depreciation, you must ensure that your home doesn’t depreciate so much.
You may have to pay for property taxes and upkeep costs. Homeowners who take on a reverse mortgage must pay property taxes and home maintenance costs.
Only in certain circumstances, such as when the borrower dies, will a reverse mortgage be considered a “foreclosement.” Once one qualifying event occurs, the lender is entitled to receive the reverse mortgage loan amount. If the house owner defaults on the mortgage, the bank may take legal action against them.
There Are Three Types of Reverse Mortgages
There are three reverse mortgage loans, each with its rules and regulations. Some of these loan programs may be available to you if you live in an area with no restrictions.
A reverse mortgage allows you to borrow against the value of your home without having to pay any monthly payments. If you fail to pay back the loan, the unpaid balance grows.
Single-purpose Reverse Mortgages are available for specific states, governmental agencies, or nonprofits. Low- or middle-income borrowers may get a lower interest rate if they take out a second mortgage.
However, these loans usually require approval by the lender, and the borrower cannot use the proceeds for any purpose other than paying off the debt. You can use the money from HECMs and reverse mortgages however you want.
Home Equity Conversion Mortgages backed by the Federal Housing Administration (FHA) protect borrowers from financial loss if they default on their mortgage payments. It doesn’t matter if you have a terrible or excellent score when applying for a HECM loan.
Additionally, the borrower will never owe more than the property’s current market value because the government insures the lender against any losses. These protections mean HECM is a much safer option than a traditional mortgage.
Proprietary Reverse Mortgage borrowers don’t limit how much they can borrow, unlike HECM borrowers, who must be at least 62 years old and whose homes must be valued at $970,000 or less. They don’t charge any upfront fees for their loans, but they might have higher rates than conventional loans.
Most private reverse mortgage companies offer one type of loan, called a “proprietary” reverse mortgage. These loans usually require an upfront fee, which the lender pays back if the borrower sells the property before he dies.
Some companies offer two kinds of mortgages: a proprietary reverse mortgage loan and a Home Equity Conversion Loan (HELOC).
HECMs are government insured and allow homeowners to convert some equity from their primary residence into cash without selling the house. Reverse mortgages are most useful for older borrowers who anticipate their homes’ value to exceed the HECM limit (currently $625,500).
What Causes a Reverse Mortgage Foreclosure?
There are numerous reasons why someone may be forced into a reverse mortgage. Still, only one must happen before the homeowner becomes subject to a reverse mortgage loan modification. If you take out an equity loan, review the situations where foreclosure could happen. The following are standard features of most reverse mortgages.
➢ If the deceased person has no surviving family members, the lender may be able to take possession of the property.
➢ The property has been sold, or the ownership has changed hands.
➢ The borrower uses the house for occasional visits.
➢ The borrower hasn’t lived in the house for at least one year.
➢ The homeowner misses payments for property taxes or homeowners’ insurance.
➢ The house is not well kept.
Reverse Mortgage Foreclosure Timeline
When any of these things happen, the foreclosure procedure starts. These steps are relevant if you’re not facing a HECM loan.
If you’re considering an extension, keep in mind that extensions aren’t always available for single-purpose and proprietary loans. You might want to talk to your lender if you have any questions.
➢ Suppose the lender becomes aware of an event within thirty days after the loan was made. In that case, the lender sends a “due and payable” notice by mail to the borrower, giving the borrower six months to either repay the loan or face foreclosure proceedings.
➢ The foreclosure timelines are based on the dates of the triggering events and not the dates when the lenders become aware of them. It’s essential to notify the loan servicer immediately if there are any issues with the loan.
➢ Within six months, the borrower must pay back the principal balance plus interest, and the lender must give the borrower a pre-foreclosure notice.
➢ If the responsible party has not paid back the loan by the end of the six-month grace period, they may ask for an additional three-month extension. HUD must approve the applications for an extension. If the surviving spouse or heirs want to continue living there after the owner’s death, they need to prove that they’ve tried to refinance or sell the house.
➢ If the loan servicer doesn’t extend the loan for another three months after the first extension expires, they can start foreclosure proceedings against the property. Depending on where you live, the length of the loan modification period may vary.
If You’re Facing Foreclosure, There Are Ways to Avoid It
➢ If you want to keep ownership of the house, refinance to a traditional loan. Lending institutions may be willing to help underwater homeowners. They also offer financing solutions, including a cash-out refinance, to allow our clients to pay for their mortgage without having to sell their homes.
➢ Keep communicating with the lender as often as you can. Open communication is essential to avoiding a reverse-mortgage foreclosure, especially when applying for an extension.
➢ A repayment plan is an excellent way to keep your house if your lender offers one. Contact your service provider for details on whether you’re eligible.
➢ Contact a HUD counselor for information about housing options. HUD counselors are trained to advise homeowners who may be at risk of losing their homes.
➢ Selling the house can provide enough funds to repay the reverse mortgage loan.
➢ Paying off the debt with cash is one way to pay off the debt. You can either sell the house and pay off the reverse mortgages or keep the house and continue making payments.
Foreclosure Protections for Reverse Mortgage Borrowers
Reverse mortgages have characteristics that help borrowers avoid losing their homes if they become unable to pay their monthly payments.
During the first phase of the reverse mortgage application, homeowners must attend a 90-minute counseling appointment.
They were approved by HUD (the U.S. Department of Housing and Urban Development), the counseling session educates borrowers on their loans, what fees they must repay, and other available financial options.
As mentioned in the timeline above, if you’re having trouble making payments on your mortgage because you’ve lost your job, two options are available to you. You may be eligible for an additional three months to repay your loan. Or you may qualify for a forbearance period where you won’t have to make monthly payments.
Furthermore, if borrowers want to prevent reverse mortgages from becoming foreclosures, they can give back the deed to their homes to the lenders who issued them. And the lender’s credit score won’t be affected either.
Suppose you’re the surviving spouse of someone whose estate has taken out a reverse mortgage but didn’t include you in the loan or ownership of the property. In that case, you might be eligible for a nonborrowing spousal exemption. A nonborrowed partner can stay at their current residence if they meet these five requirements:
1. You’re not behind on property taxes and insurance payments.
2. You must follow the terms and conditions of the HECM loan.
3. You were legally married to the homeowner.
4. The house was your primary residence during the period when the HECM was active.
5. You have the legal right to keep the house for up to 90 consecutive business days after your spouse passes away.
Risks of Reverse Mortgage Foreclosure
It protects borrowers from losing their homes if they cannot repay their loans. Other reverse mortgages may be less risky for homeowners but pose more significant risks to them or their heirs.
For example, when an individual dies, their estate may inherit the house and any outstanding mortgages. They could be saddled with debt if they aren’t ready for these responsibilities.
If you’re facing foreclosure, the lender may sue you for any unpaid debt if the sales price of your former house isn’t enough to pay off the remaining balance.
Summarizing the Reverse Mortgage Foreclosure Process
Reverse mortgage loans can be a good way for older people who need extra cash to help them stay independent. However, if certain events occur to initiate a reverse loan default, the borrower, surviving spouses, or responsible heirs must act to avoid extreme losses due to default. Working with your bank can help you avoid foreclosure if you’re having trouble making payments.