It is imperative that seniors communicate with their heirs that they have a Reverse Mortgage. Soon after you pass away, the lender must be paid. Heirs of an Estate with this type of mortgage plan will need to decide quickly after death how the debt will be settled with the lender.
Should you pass away and you have a surviving spouse, who is listed as a borrower on the mortgage, he or she can continue to live in the home, and the terms of the plan will not change. However, if both or the remaining borrower on this mortgage pass away, non-spousal heirs and adult children, if any, need to pay off the loan. Usually within six months, depending on the loan contract.
The surviving spouse may be able to remain in the home even they were not borrowers according to the settlement agreement. Borrowers often do not add a younger spouse to the home’s title to enable them to secure a larger mortgage. This often leaves the younger spouse open to being evicted and property foreclosure after the older spouse’s death.
These mortgage rules that affect surviving non-borrower spouses are complicated. Surviving spouses and heirs may need legal consultation and representation if the remaining spouse wants to continue occupying the property.
Their decision is usually determined by the amount of equity available in the property. They can then decide to sell the property, keep the property, hand the keys over back to the lender
A Reverse Mortgage is a loan program for seniors aged 62 onwards to be able to have access to their home equity. Most of these are government supported Home Equity Conversion Mortgages. No payments are made on the loan while the homeowner lives in the house, however at the time of passing, of the last borrower, the loan becomes fully payable.
The general policy rule is that heirs will be allowed the initial six months to pay the loan off. It is advantageous to settle this as fast as possible. Until the loan is settled in full the interest on the insurance premiums will continue to accumulate monthly and take a portion of the remaining equity.
Fortunately the heirs are not liable for any excess, should the loan amount exceed the value of the home. Reverse Mortgages do not allow the lender to go after the remaining estate or the heirs’ personal assets for payment. This is the reason why the estate can never owe more than the total value of the property.
Should the loan amount exceed the value of the property, this difference is then covered by the federal mortgage insurance; this is paid by the borrower while holding an HECM. Any remaining equity of the property goes into the estate of the deceased.
The executor of the estate must contact the lender when the last owner dies. Lenders track deaths and will notify heirs if their records show that the remaining borrower has died. The loan servicer sends out a letter intended to inform the heirs of the rules and determine their intentions for the loan and property. It happens often that lenders encounter problems with heirs and or family members not notifying them and trying to stay in the home, as a result this letter from the lender is often harsh and insensitive.
The Bank will immediately stop loan proceeds which are paid as a monthly income. Any line of credit which has been opened will be closed immediately.
The deceased’s furnishings and personal belongings can be removed from the home. As defined by Stae Law “Fixtures” cannot be removed from the home.
A tenant living in the property might have certain rights and protections under state law.
The lender sends a federally approved appraiser within 30 days to determine the property’s market value. The amount due to the bank is calculated as the lesser of the loan balance and 95% of the recently appraised market value of the property.
Upon deciding to sell the house, the heirs must list the home at the minimum of the appraised value. All sale proceeds pay off the loan and real estate fees, the estate then receives no equity. The government insurance picks up the difference on the loan and pays the lender this balance.
After all appraisals have been done and the lender has made the amount payable known to the heirs, if there is no equity, heirs can give the keys back to the bank avoid the extra work of trying to sell the home. This is known as a “deed in lieu of foreclosure” the deed is signed over to the bank.
To enable heirs a requisition for a 90-day extension, they must prove that they are intent and actively sourcing financing to keep the house or alternatively proactively doing all that is necessary to sell the house.