What is The Most Important Issue When Inheriting a House with a Reverse Mortgage?
The important issues when inheriting a house with a reverse mortgage is understanding the timeline. The timeline is the most important issue when inheriting a house with a reverse mortgage because of the nature of a reverse mortgage loan. A reverse mortgage is not like other real estate loans.
How is a reverse mortgage loan different from a standard mortgage?
The reverse mortgage entire loan balance becomes due and payable when the borrower dies or moves away permanently or sells the home.
You inherit a property with a reverse mortgage now what?
The key point when you inherit a property with a reverse mortgage taken out against the property, you must pay back the reverse mortgage to the lender. You could continue the reverse mortgage if you are a co-borrower or the spouse of the person who has passed away. How to sell a house in probate or trust with a reverse mortgage.
If the borrower dies, then their heirs inherit the home with reverse mortgage loan. The loan must be paid off in its entirety, unless it is passed to a spouse. If you inherit a reverse mortgage from your parents, grandparents or any one else, you will need to pay back the mortgage in full within a set time. Also if the property is in probate can make these issues more complicated. Knowing how a reverse mortgage impacts the property it is best to understand how a property is transferred when the owner dies. I wrote an article about this issue – Wills, Trust and Probate transferring real property upon death the basics.
How can a reverse mortgage be paid back to the lender?
The reverse mortgage can be paid off in three ways:
- Pay off the mortgage balance in full with estate or other funds.
- Pay off the balance of the reverse mortgage in full by obtaining a “forward” mortgage on the property. A “forward” mortgage is a standard mortgage on the property.
- Pay off the reverse mortgage with the proceeds from selling the property. The heirs or estate keeps all the funds above the reverse mortgage minus any other fees, liabilities or other financial issues.
What is the timeline for a reverse mortgage?
A typical timeline for what happens to a reverse mortgage after the original borrower passes away can span a full year or only 6 months. It is important for the executors or trustees to take action quickly.
1 to 30 Days
Within 30 days the lenders get a notice of the death of the borrower. The lender then sends a Due and Payable Notice to the estate. How do lenders learn of the death of the borrower? Most lenders subscribe to databases that track death certificates. So the heirs should not have to notify the lender. But if the heirs know about a reverse mortgage and do not notify the lender in a timely matter, the timeline could start at the time of death based on the contract of the loan. But the law is complicated, and if needed check with a lawyer who is specializes in this area.
30 Days
The Due and Payable Notice to the estate contains information for how heirs may proceed. Here are some general issues that come with the notice, but yours could be different. The heirs could satisfy the remaining loan balance of the reverse mortgage – in other words pay it off in full. You can do this with a forward or standard mortgage or the heirs’ own funds. Sell the property for at least 95% of the appraised value. At that point the heirs will receive nothing for the house if sold for less than the loan amount. Or the heirs can provide the lender with a deed-in-lieu of foreclosure. This basically gives the house to the lender.
60 Days
After the Due and Payable Notice is sent, the heirs are required to get an appraisal of the home no later than 30 days. The appraised value will help set the lost amount of the loan if the property sold for less than the loan amount. If the property sells for less than the loan amount the reverse mortgage lender receives all the funds at escrow. But if the property sells for more than the loan amount the heirs receive the surplus funds barring any other expenses deducted from the sale price.
6 Months
After the Due and Payable Notice is sent, the heirs are required to get an appraisal of the home no later than 30 days. The appraised value will help set the lost amount of the loan if the property sold for less than the loan amount. If the property sells for less than the loan amount the reverse mortgage lender receives all the funds at escrow. But if the property sells for more than the loan amount the heirs receive the surplus funds barring any other expenses deducted from the sale price.
12 Months
The heirs can get up to a year to satisfy the reverse mortgage, if they are eligible to receive extensions. Heirs may be eligible to receive two three-month extensions to pay the reverse mortgage balance. This is subject to HUD approval. This gives heirs up to a full year from the death of the borrower to repay the loan balance or sell the home. This is correct, if the reverse mortgage is not satisfied by the end of this process, the reverse mortgage company gets the property.
Why is the timeline of a reverse mortgage important?
The timeline is the most important issue when inheriting a house with a reverse mortgage because if actions are not taken the lender will own the house. There can be more profit for the reverse mortgage company to own the property than having the loan paid off. The heirs could lose tens of thousands or even hundreds of thousands of dollars by not taking action. There is also a probate timeline to know if the property is in probate. When selling a property in probate it is important to understand how it is done. I wrote an article in detail – How to Sell Probate Property in Sacramento?
How can cash home buyers help with a reverse mortgage?
A cash real estate investment buyers in Sacramento don’t want this to happen to any heirs inheriting a house with a reverse mortgage. With their ability to buy a house fast we can help the heirs keep the value of the house. We will help the heirs of an inherited house with a reverse mortgage know their options. You can sell a house in as is condition faster then trying to fix up and sell. As you know, Coffee Real Estate investor buyers network for cash in any condition, fast, therefore we help heirs keep the funds above the reverse mortgage amount. Also you can use the same help with inheriting a standard mortgage.
A cash real estate investment buyers don’t want this to happen to any heirs inheriting a house with a reverse mortgage. With their ability to buy a house fast we can help the heirs keep the value of the house. We will help the heirs of an inherited house with a reverse mortgage know their options. As you know, Coffee Real Estate investor buyers network for cash in any condition, fast, therefore we help heirs keep the funds above the reverse mortgage amount.
Let us help you with understanding your options for the inherited property with a reverse mortgage. It is a lot of numbers but some of those numbers can be a big payday for the heirs. Get a FREE no obligation evaluation.
