Settling a Reverse Mortgage: What Heirs Must Do to clear title

Reverse Mortgage

When a borrower with a reverse mortgage passes away, the heirs typically have several options to address the reverse mortgage balance. Here are the key details about the timeline and process:

  1. Timeframe: Heirs generally have up to 30 days to inform the lender of their intentions regarding the property.
  2. Repayment Period: After the initial notification, heirs usually have up to six months to either repay the loan balance or sell the home to pay off the reverse mortgage. However, they can often request extensions:
    • First Extension: Up to 6 months
    • Second Extension: An additional 6 months, potentially extending the total time to up to one year from the borrower’s death .
  3. Options for Heirs:
    • Repay the Loan: Pay off the full balance of the reverse mortgage, typically through refinancing or other means.
    • Sell the Home: Sell the property to pay off the reverse mortgage. Any remaining equity after the loan is paid off belongs to the heirs.
    • Deed in Lieu of Foreclosure: If the loan balance exceeds the home’s value, heirs can opt to transfer the property title to the lender to satisfy the debt.
    • Foreclosure: If no action is taken, the lender will eventually foreclose on the property .
  4. Appraisal Requirement: To determine the amount owed, the lender will usually require an appraisal of the home within 30 days of the borrower’s death.

Key Considerations:

  • Heirs’ Decisions: The heirs’ decision on how to proceed will depend on the home’s market value compared to the reverse mortgage balance.
  • Deficiency Balance: Heirs are not personally liable for any deficiency if the home’s sale does not cover the reverse mortgage balance; the lender absorbs the loss through federal insurance on reverse mortgages.

Conclusion:

Heirs should act promptly to manage the reverse mortgage, taking advantage of available extensions if needed. Consulting with a financial advisor or attorney can also be beneficial to navigate the process and make informed decisions.

For more detailed guidance, consider resources like the Consumer Financial Protection Bureau (CFPB) or HUD’s HECM program guidelines .

 

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