HappySeniorHomeOwners Blog

What Happens After Death?

Reverse Mortgage Borrowers.

This question is paramount in the mind of many Homeowners that have a Reverse Mortgage on their homes, as well as with their heirs, future and present.  NONE of the generalized information provided here is to be construed as legal advice, I AM NOT AN ATTORNEY.

For the purpose of this post, I will refer ONLY to the US Congress created, HUD regulated, FHA Insured "Home Equity Conversion Mortgage" - H.E.C.M. Reverse Mortgage the only one available today and the most numerous one. A few years ago, there were several "propietary" Reverse Mortgages which might have different set of terms and conditions. You should check with a competent attorney to determine which type you have.

Let's get one thing clear, the HECM Reverse Mortgage was created to help the Senior Homeowner, nobody else. Period. The Borrower owns the property, but Lender has some rights given by the mortgage. Neither the Lender nor the Government own or want the property. Period.

As a Senior with a HECM Reverse Mortgage on my home, and a Reverse Mortgage Specialist Loan Originator for over 7 years, I can vouch for the fact that it has helped many, many Seniors. For MANY it has been a blessing.

Now, lets start by saying that a HECM Reverse Mortgage is a Non-Recourse loan. In simple terms it means that the Lender (Mortgagee) CAN NOT collect one penny more than "the lesser of the balance due or the value of the home", either from the Borrower in life, or from the estate. Not a penny more. Period.

Let’s see some samples to make it clear.

Sample 1): Property Sold or refinanced or loan paid off.
Home Value:         $300,000
Loan Balance due: $200,000
Remaining Equity: $100,000 This Equity belongs to Homeowner in life or to estate.

Sample 2): Property "underwater"
Home Value:        $300,000
Loan Balance due: $350,000
Shortfall:           ($ 50,000)

The amount owed, will depend on several factors:
(1) how many years ago the Reverse Mortgage was done.
(2) the amount of proceeds advanced to the Borrower.
(3) Plan chosen and Interest Rate of the loan.

An external factor which is the increase or decrease in value of the property does not affect the balance due. However, it does affects whether the balance due will be smaller or greater than the value of the home.

The Homeowner paid a FHA required Mortgage Insurance Premium(MIP) at closing and monthly. This Mortgage Insurance compensates the Lender for this shortfall once the property is foreclosed and sold, sold in a Short Sale, or "given" to the Lender In a "deed-in-lieu-of-foreclosure" arrangement and sold. The Lender can not, repeat CAN NOT, recover this amount from the Borrower or the heirs.

Now, let's see what happens when the LAST Borrower passes away. By the terms of most loans whether traditional or HECM, at death the loan becomes immediately due and payable. The Borrower no longer exists. Lenders subscribe to services which notifiy them of the death of a Borrower. Heirs should notify Lender as soon as possible.

However, HUD rules generally allows for a "reasonable" amount of time (6 months and up to 2 (two) 90 days increments), not to exceed one (1) year. In other words, heirs have UP TO a year to pay off the balance due as descibed above. Heirs must show they are doing "due diligence" to pay-off the loan. During that time, the estate should communicate and cooperate constantly with the Loan Servicer and seek their help and guidance. Most will try to help you.

If balance due is not paid within the time allowed (up to 1 year) the Lender will initiate Foreclosure action and the property could be lost. If the estate does not cooperate, Servicer does not have to wait one year to initiate the foreclosure action.

Please note that interest, MI premiums, and service fees (if any) continue to accrue until the loan is paid off in full. Property Taxes, insurance, and maintenance fees (if any) must be paid during this period.

When the last Borrower passes away, there is a H.U.D Rule that could allow the estate, heir or heirs to satisfy the HECM debt by paying the lesser of, the mortgage balance or 95% of the current appraised value to keep the property.

Please be aware that any non-borrowing occupant MUST vacate the property opportunely.

I have tried to simplify the process to make it easier to understand. I sincerely hope that it is helpful. Again, this should not be construed to be legal advise. You are welcome to post your comments or questions, but please consult a competent attorney. It is subject to error and/or ommissions and to change without prior notice.

Your comments will be appreciated. Send them to RodKohly@Gmail.com *
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