Reverse Mortgage Foreclosure

Foreclosure is the removal of the mortgagee’s right to redeem the mortgage. Although a reverse mortgage is used to avoid foreclosure, the reverse mortgage may be subject to foreclosure in certain circumstances. Due to the type of a reverse mortgage whereby payments are made to and not from the borrower, the reverse mortgage can only become due and payable; and subject to foreclosure when the borrower:

1. Passes On

When the borrower or the last person among the borrowers passes on, the heirs can decide to pay off the debt, deed the home to the lender, or sell the house for at least 95% of the estimated value or 95% of the currently appraised value to the lender. Else, the reverse mortgage will be foreclosed by the lender.

2. Sells the Home

If the borrower sells the home, foreclosure is hardly required. The profits from the sale of the property can be used to pay off the reverse mortgage, other liens, and taxes. The sale of the building is usually made if the profit will be large enough to cover the payment of all mandatory costs regarding the reverse mortgage and put extra money in the borrower’s estate.

3. Relocates

If the borrower, for certain reasons, leaves the home permanently or moves to another place for 12 months in a row, the reverse mortgage will have to be repaid. Otherwise, the lender can foreclose. Moreover, if the borrower moves out of the house or rents the home out, the lender will ask for repayment immediately, or choose to foreclose.

4. Fails to Pay Mandatory Obligations Foreclosure

If the borrower cannot pay the mandatory property taxes or insurance on the home that is subject to a reverse mortgage, the lender could take care of the bills initially. But if the borrower fails to make a repayment, the lender can foreclose.

5. Lets the Home Fall into Disrepair

If the borrower fails to maintain the house and make necessary repairs that leave the residence in a bad state, the lender can choose to foreclose on the reverse mortgage because the house must be in good shape for the lender to get back the money lent to the borrower.

6. Fails to Abide By Other Requirements Stated By the Lender

The failure of the borrower to abide by other terms specified by the lender is tantamount to a breach of contract. The lender can decide the gravity of the violation to determine if foreclosure is necessary. However, the borrower should ensure to keep all requirements to prevent the lender from foreclosing on the mortgage loan.

When the lender forecloses on a reverse mortgage, the amount owed by the borrower (regarding the payments received from the lender) sometimes is more than the foreclosure sale price. The difference if the foreclosure sales price is less than the total debt is referred to as a deficiency. However, with reverse mortgages, deficiency judgments are not allowed; in that, the lender cannot ask the borrower or the heir to offset the deficiency.

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The services referred to herein are not available to persons located outside the state of California.
Borrower is responsible for property taxes, homeowners insurance, and property maintenance. A HECM is a home-secured debt payable upon default or a maturity event. Some restrictions apply. This material has not been reviewed, approved, or issued by HUD, FHA, or any government agency.