- It closed after August 4th 2014, AND
- There is a surviving spouse, who was not named on the existing mortgage (a non-borrowing spouse), who still lives in the property.*
A reverse mortgage becomes due and payable when the last borrower named on the original contract dies, unless:
If there is no surviving non-borrowing spouse, the reverse mortgage becomes due and payable. However, common sense dictates that the heirs can't possibly refinance or sell the home on the day of death to satisfy the debt, so reverse mortgage contracts stipulate that the lender must allow 30 days for the heirs to decide how they wish to proceed. They are not required to sell the home to pay off the reverse mortgage, but if they want to keep the property, the heirs have to pay off the loan. After it is decided how the debt will be satisfied, most lenders will allow an additional 6 months for the heirs to come up with the money, obtain alternative financing or sell the property.
When heirs choose to sell, they are free to decide on their own real estate broker, manage the sale and keep any capital gains remaining after the reverse mortgage balance has been satisfied and transaction closing costs have been paid. The borrower's personal belongings and furnishings can be removed, but fixtures, as defined by state law, cannot.
If the heirs decide to retain the property, the reverse mortgage lender will order an appraisal to establish market value. If the property is worth less than the total amount owed, the heirs are only required to pay ninety-five percent of the appraised value to satisfy the debt in full. These mortgages are non-recourse, so neither the heirs nor any other assets of the borrower’s estate are held liable for paying any amount owed above 95% of market value of the property.
Lenders will generally send annual occupancy letters to borrowers. They also monitor the Social Security Death Index as well as watch databases that keep track of property taxes and homeowner’s insurance payments. If they don't receive a reply to the annual occupancy letter or the property taxes and/or the homeowners insurance go delinquent, they may contact next of kin, search other records or send an inspector to the property in person.
ABOUT THE Author
Michael Melody has been a Mortgage professional in Southern California since
1990. Now based in Huntington Beach, Kevin assists buyers and sellers of
residential property with all their financing needs, with a special emphasis on
"Old School" personal service. He uses his more than two decades of
experience in mortgage lending and residential Real Estate to take his clients
from start to finish on any type of transaction. Sellers can take advantage of
his intimate knowledge of financing to pre-screen buyers and offer creative
solutions for self-employed individuals, business owners and otherwise
well-qualified buyers who may not fit traditional lending guidelines. He also assists
homeowners looking to refinance to a better rate or lower payment, consolidate
debts or get cash for home improvements, and even families whose homes are
underwater can be helped under Fannie Mae's Home Affordable Refinance Program
(HARP) and Freddie Mac's Open Access Relief Refinance for owner-occupied
single-family homes, condos, manufactured homes, and 2-4 unit residential
income properties, as well as vacation homes, rentals and investment property.
Kevin is a proud veteran of the United States Air Force, and author of the 2001
book "What Lenders Don't Want You To Know."