What happens to the Home after I've passed on?
With a Reverse mortgage the loan is not due until the borrower no longer occupies the home as their principal residence, maintains the home and pays taxes and insurance on the property.
In This Article We Will Answer the Question…
What happens to the Home after I’ve passed on?
Several misunderstandings followed The Reverse Mortgage before it was regulated and became a federally-insured financial tool. It was a difficult task to correct the misconceptions. Several people who are aware of the benefits of this program have tried to proffer the proper explanation.
The lender does NOT claim ownership of the home after you've passed on, take title to the home or its equity by any means.
Either the homeowner or heir can sell the home without any prepayment consequences. The HECM is just a lien (a legal claim on the property as security for a debt). If the home is sold, the Reverse Mortgage lien is settled in the same manner other liens would be settled.
The situation whereby a non-borrowing spouse (NBS) is still living in the home will be discussed later. Meanwhile, let us assume that is not the case at present.
Therefore, what happens if the last surviving borrower dies? When such situation occurs, the heirs have several options; which become clear after the heirs answer these fundamental questions:
“Is the loan balance greater than the home value?” And “Do I wish to retain the home?”
Did You Know?
Many seniors who do not qualify for traditional financing are eligible for a Reverse mortgage.
Options for Heirs
If the heirs intend to retain the home, they can:
Acquire the home for 95% of present home value. The heirs’ interests in a post-death transfer of ownership of the property are protected by the nonrecourse feature.
Settle the outstanding mortgage. The heirs are required to pay off the full outstanding loan balance.
If the heirs do not wish to keep the home, they can:
Agree to a Deed-in-Lieu of Foreclosure: The heirs can give up the home to the lender or servicer if the home does not have any economic value. The non-recourse feature protects the heirs; in that, they do not have to offset any excess loan balance over the value of the home.
Sell the home and receive a profit on the sale.
This is the most common way through which borrowers can transfer an inheritance to their heirs.
The heirs are, however, expected to notify the servicer if they want to sell the home. Then, they will be allowed to sell the home within six months; during which they are not expected to pay either a monthly principal or interests. However, they may have up to two 90 days’ extensions that are usually approved by the HUD.
Find out more about What happens to the Home After I've Passed On
24 CFR § 206.125a. ACQUISITION AND SALE OF THE PROPERTY
After the Secretary has been informed, and the Secretary’s approval has been received when required, the mortgagee shall inform the mortgagor that the mortgage has matured due to the mortgagor’s death. The mortgagee shall ask the mortgagor to:
(i) settle in full the mortgage balance, with any accumulated interest and MIP;
(ii) sell the property for a minimum of 95% of the estimated value under §
206.125(b), with the net earnings from the sale to be used to liquidate the mortgage outstanding; or
(iii) give the mortgagee a deed-in-lieu of foreclosure. The mortgagee has only 30 days to adhere to the preceding sentence, or address the issue that led to the mortgage coming due and payable before foreclosure proceeding starts.