Options for Heirs to Pay Off a Reverse Mortgage
As more senior homeowners are turning to reverse mortgages, their adult children must face concerns about what will happen to that debt once their mom or dad pass away. Because there is so much misinformation about reverse mortgages out there, it can easily become overwhelming for children of reverse mortgage homeowners. In this post, we’ll review some of the options for heirs who are left to deal with a reverse mortgage.
Before we get started, let’s make one thing clear: As an heir, you are NOT personally liable for paying off the reverse mortgage debt. Keep reading to learn more.
What to Do With a Reverse Mortgage Once Your Parent Dies – Step by Step Guide
1. Receive Letter From Loan Servicer
If you are an heir, you and any other heirs will receive a letter from your parents’ reverse mortgage loan servicer, explaining the rules and asking what you plan to do about the loan and property. Again, this does not mean you are personally liable for the loan balance. The loan servicer simply wants this information so they know how to proceed.
Sometimes, these letters can come across as harsh or insensitive, especially since they are typically received shortly after a loved one’s death. Please understand that the mortgage servicer is just trying to take care of this unpleasant business as quickly and efficiently as possible.
If the letter goes unanswered, or taxes and insurance premiums go unpaid, the next step is for the lender to start looking for alternate contacts, or sending someone out to the home in person to see if anyone is living in the home. This is not intended to be intrusive or insensitive. There are some cases in which a reverse mortgage borrower passes away and has no heirs or family members to handle their affairs, which means the home sits abandoned.
2. Answer Letter to the Best of Your Ability
Answer the questions in that letter the best you can. Feel free to consult with a legal professional if it makes you more comfortable. The main thing to remember at this stage is to keep communication open with the loan servicer.
3. Decide What You Want to Do With the Home
Here is where you will have to make a decision. You can either keep the home or sell it. Whatever you and the rest of the heirs decide is completely up to you. However, depending on the choice you make, you may have to pay off the reverse mortgage loan.
If you want to keep the home, you must pay off the reverse mortgage loan. You will not have to pay off the entire loan. You will owe only up to 95% of the home’s appraised value, even if the loan balance is higher.
If the home is worth more than the amount owed on the reverse mortgage, you can sell the home and keep the difference.
If the home is worth less than what is owed, you can still opt to keep it, as long as the reverse loan is paid off – again, only up to 95% of the value will be owed.
On the other hand, you can choose to sign a deed-in-lieu of foreclosure and give the property over to the lender if you do not want to keep the home and the loan balance exceeds the home’s value.
The best thing to do is take some time to educate yourself on your rights and your options. Reach out to the loan servicer with any questions or concerns you may have. As long as you keep communication open and do your best to handle the process in a timely manner, dealing with a deceased parent’s reverse mortgage can go smoothly.
Please note that reverse mortgage process may have changed since this article was written. Please consult with a reverse mortgage professional for the most up-to-date information on this topic.
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Potential Benefits of Reverse Mortgages**:
- No monthly payments and no repayment is required until all borrowers are no longer using their property as their primary residence, all parties on the deed pass away, or they fail to pay their property taxes and homeowners insurance.
- Tax free monthly income*
- Payments can be used for whatever the borrower wants, including home renovations, consolidating debt, paying for medical expenses and insurance costs, and traveling and other leisure activities
- Reverse mortgages provide a tool that allows seniors to tap into the equity they have in their homes. There are no income or minimum credit score qualifications. In today’s tightening credit markets, reverse mortgage products may be one of the best solutions available to most retired homeowners.
- Possibly the greatest benefit of all, reverse mortgage programs may help seniorsremain in their homes that they have worked so hard to pay for throughout their lives.
- A reverse mortgage is what we call a non-recourse loan. This means that with a reverse mortgage you are not personally liable. The liability is only to the extent of the value of your home at time of sale, death or vacating the premises as your permanent residence. You are not liable nor are your heirs personally liable; they can either sell the home at time of your death or keep the home and pay off the remaining balance of the reverse mortgage.
Talk to a reverse mortgage professional to learn more about some of the benefits of reverse mortgages and to see if one is right for your financial needs.
- Be sure to check out our page which weighs a reverse mortgage versus a traditional home equity line of credit (HELOC).
- Also, learn how borrowers can use funds for a reverse mortgage to help pay for assisted living and/or nursing home care.
Related Topic: So, there are no monthly payment obligations? Not exactly.
*Consult a financial tax professional for details.
**Loan benefits and parameters are subject to change. Consult with a mortgage professional for up-to-date information.