Reverse Mortgage Foreclosure Timeline

Reverse Mortgage Foreclosure Timeline

Reverse mortgage foreclosure timeline information and things you can do if you are facing a reverse mortgage foreclosure.

Many seniors aged 62 and up choose a reverse mortgage to convert their home’s value into cash without having to make a monthly mortgage payment.

While the lender will not foreclose because of missing payments, there are other circumstances that could lead to a reverse mortgage foreclosure.

What is a foreclosure on a reverse mortgage?

When a lender seeks full repayment of a reverse mortgage loan debt owing to a “triggering event,” such as the death of all of the homeowners, a reverse mortgage foreclosure occurs.

Other common situations, however, can result in a reverse mortgage foreclosure.

The majority of borrowers opt for a Federal Housing Administration-insured Home Equity Conversion Mortgage (HECM) (FHA).

Although private lenders provide proprietary reverse mortgage products, this article focuses on HECMs.

What factors contribute to a reverse mortgage default?

Several months of missed mortgage payments usually kickstarts the foreclosure process in most mortgages.

Reverse mortgages, on the other hand, do not need monthly payments to the lender, and several homeowners are unaware of when a lender can demand repayment of the loan.

There are many trigger or “maturity” events, as they are known in financial jargon, that can start the reverse mortgage foreclosure process, including:

➣ The owners all die

➣ One of the owners passes away, and the remaining spouse was not on the reverse mortgage.

➣ The property is transferred or sold.

➣ The borrower does not live in the house full-time.

➣ The borrower does not stay in the house for more than a year at a time.

➣ The borrower fails to pay property taxes or homeowners insurance in a timely manner.

➣ The borrower neglects the property

Reverse mortgage foreclosure timeline

➣ There is a triggering event. When the loan servicer receives notification that one or both of the homeowners have died, this is the most usual trigger event.

Reverse mortgage lenders, on the other hand, can initiate a reverse mortgage foreclosure based on any of the previous section’s maturity events.

➣ The owners or heirs are notified. Within 30 days of the maturity event, the lender will issue a “Due and Payable” letter to the residence.

The surviving spouse or heirs have six months to sell the house or find a way to repay the reverse mortgage sum at this point.

It is critical that the borrower or heirs reply; otherwise, the loan servicer will be able to start the foreclosure procedure.

➣ Requests for extensions are possible. If the reverse mortgage debt is not paid off within six months, HUD will approve two three-month extensions.

To request an extension, the surviving spouse or heirs must show documentation of continued efforts to sell or refinance the home.

If the debt cannot be repaid, foreclosure occurs. The loan servicer might foreclose on your home if you or your heirs are unable to repay the reverse mortgage.

The length of the foreclosure procedure differs from state to state. If you need assistance understanding your rights, contact a local foreclosure attorney.

Important:  When a reverse mortgage borrower passes away, it’s critical that the servicer is notified right away.

The deadlines indicated above are based on the date of death as documented on the death certificate, not when the servicer is notified.

This may leave heirs with less time to sell or refinance the home, increasing the likelihood of foreclosure.

How to Avoid Foreclosure on a Reverse Mortgage

➣ Keep in touch with the loan servicer as frequently as feasible. Keep in touch with your loan servicer on a frequent basis, especially if you need to request extensions to work out a settlement plan.

➣ Make a repayment request. If you qualify, certain loan servicers may offer you a repayment plan.

➣ Seek assistance from a HUD counselor. A HUD counselor is trained to provide foreclosure prevention information and may be able to supply you with useful foreclosure prevention tips.

➣ Convert to a traditional mortgage. If you fulfill the minimum mortgage requirements, you may be able to refinance to a normal, forward mortgage.

➣ You should sell your house. A surviving owner or heir can sell the home for 95% of its appraised worth without having to worry about repaying any remaining reverse mortgage balance.

➣ Pay off your reverse mortgage in full. If heirs have the economic resources to pay off the loan sum, this may be an option for them to maintain the property in the family.

➣ Provide a deed-in-lieu-of-foreclosure option. If no repayment is available and the heirs do not want to bear the cost of the home’s sale, the deed might be returned to the lender rather than going through foreclosure.

Things to Know

Provided your spouse took out a reverse mortgage but didn’t include you on the title because you’re under 62, you may be entitled to stay in the house as an “eligible non-borrowing spouse” if you match the following five criteria:

➣ You pay your taxes and insurance premiums on time.

➣ You must keep the property in accordance with the conditions of the HECM.

➣ You were legally married under the requirements for non-borrowing spouses.

➣ You lived in the house as your principal residence during the HECM period.

➣ You have the legal right to take possession of the house within 90 days following the death of the borrowing spouse.

What happens if you lose your reverse mortgage?

Although the FHA HECM program has built-in features to reduce the financial effects of a reverse mortgage default, the aftermath is comparable to that of a traditional foreclosure:

➣ The loan is no longer your responsibility.

➣ Any loan balance that exceeds the home’s worth is not passed down to your heirs.

➣ If the loan total exceeds the home’s value, the FHA mortgage insurance covers the loss.

➣ Your loan’s investor becomes the homeowner.

Frequently Asked Questions

What happens if the owner of a reverse mortgage dies?

The heirs have the option of paying off the debt (at the lower of the amount owed or 95 percent of the home’s current market value) and keeping the house, selling the house and keeping the money, or letting the lender take the house and owing nothing to the lender.

Is it possible for heirs to terminate a reverse mortgage?

A reverse mortgaged residence might be abandoned by heirs. The loan is non-recourse, which means the property is the lender’s only security.

To ensure that they are not walking away from equity that belongs to them or their family’s estate, we encourage all heirs to compare the total outstanding on the borrowers’ most current statement to the probable value as represented by a local real estate professional.

Is it possible to repurchase a home with a reverse mortgage?

The borrower and/or their heirs always own it, thus you don’t have to “buy it back.” A reverse mortgage is a loan similar to any other.

The loan can be repaid at any time without penalty, and the house remains the owner’s or their heirs’ property.

How long does it take for a reverse mortgage to be foreclosed on?

Once a Notice of Default is filed, the foreclosure timescale for a reverse mortgage is the same as for any other loan, as determined by local legislation.

The actual time it takes varies depending on the state in which the property is located, however it can take anywhere from 150 to 180 days in a Trust Deed state to over a year in a judicial foreclosure state.

Anyone facing foreclosure, including borrowers and their heirs, should get legal advice to learn about the foreclosure laws in their jurisdiction, as well as their rights and obligations under the law.

With a reverse mortgage, how long can a caretaker stay after the owner passes away?

This is a difficult question to respond to. If the owner’s heirs desire to sell the house or move in, they might start the eviction procedure right away, and it would be up to the individual laws in your area to establish your rights to stay before you have to go.

If no heirs come forward to claim the property, the lender will not be able to remove a person from the property until they own it, which will not happen until after a foreclosure process, which might take up to 5 months.

In any case, you must accept the fact that there will ultimately be a new owner, and unless they keep the home as a rental and you can agree with the new owner to continue renting from them, you will have to relocate.

It would be prudent to begin preparing for that possibility as soon as possible.

Reverse Mortgage Foreclosure Timeline Conclusion

A reverse mortgage is a complicated transaction, and many borrowers are unaware of all of the terms and conditions.

A lack of understanding might lead to adverse outcomes such as foreclosure.

Failing to make timely payments on an existing reverse mortgage loan owing to a borrower’s death or unreimbursed funeral expenditures, missing monthly installments, and failure to maintain the property in line with standards can all lead to reverse mortgage foreclosure after death.

Finance World Direct > Archived > Mortgages

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