How Are Reverse Mortgages Settled?

Los Angeles and South Bay Real Estate Video Blog with Lenny LaRocca

Reverse mortgages are a complicated subject, so today I wanted to discuss what you need to know about them and how you can pay them off.

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How do you pay off a reverse mortgage on a property?

As more and more seniors turn to reverse mortgages in current times, their surviving spouses and/or children have a couple of options to do this once they pass on.

One of those options is to pay that loan off immediately by putting that property on the market, covering the cost of the sale, and paying off the loan with the net proceeds. Also, if a property is “under water” at the time that the owner passes on, meaning that the loan value is higher than the property value, the home can be sold to the surviving owner(s) of the property for 90% of the market value.

It’s important to note that if a homeowner passes on and they had leased that property out, then that property loan is due immediately. If, by chance, you have an older family member that has a reverse mortgage on a home, you’re gambling a bit if you have that property rented out because, according to the rules, you can’t do that. More importantly, if you do break that rule and the lender doesn’t understand that or is aware of that, then at the time that the owner passes on, there could be some legal issues that arise relative to that tenant’s rights. This is a scenario that you should speak with a real estate attorney about.

Speak with an expert so you don’t leave yourself or your loved ones vulnerable.

Another important factor in a reverse mortgage is the notice of demise. This talks about how the mortgagor determines whether or not an owner has passed on. They do this through a number of different sources, such as searching the social security death index or other proprietary databases that talk about whether the owner is still alive. Your family member may also receive an annual letter from the lender confirming that they’re a) still alive, and b) in the home.

What are the spousal rights when a spouse passes on and there’s a reverse mortgage on the property? The surviving spouse might be able to remain in the home even if he/she wasn’t the co-owner because of certain HUD guidelines. This is important because some borrowers will remove a younger spouse from their home title to secure a reverse mortgage. You have to speak with reverse mortgage companies to understand what those details and requirements are so you don’t leave a younger spouse vulnerable to eviction and potential foreclosure after an older spouse’s death.

Reverse mortgages are a complicated subject, so if you’d like more information about them, please don’t hesitate to give me a call. I look forward to speaking with you!