It is very important to understand when a reverse mortgage becomes due and payable and to inform the executor of your estate of the reverse mortgage requirements. Since reverse mortgages do not require monthly mortgage payments, the interest and loan charges accrue creating a higher loan balance over time. When a maturity event takes place, such as the last borrower passing away, there is a time frame for loan repayment from the loan servicer. The heirs or estate must comply with the loan servicer and HUD and create a open line of communication. Don’t end up with surprises! Know what to expect and what you need to do so closing out the reverse mortgage will be smooth and stress free.
In 70% of cases where a reverse mortgage becomes due and payable, the reason is because of the death of the last surviving borrower. In other cases, it may be failure to pay property taxes or occupy the property as primary residence, or perhaps conveying title where borrower’s are no longer on title. Or if repairs were called out at loan closing and were not completed within 6 months, a maturity or payoff event could be triggered. Understand the rules and if you can’t comply, talk with the servicing lender, they are their to help! Don’t add children to title or if you create a living trust, get approval from the lender prior to recording a new deed into the trust to prevent any 'accidental' payoff requirement.
After a due and payable or maturity event occurs, a letter is sent out by the servicing lender within 30 days. It states that the loan is due and payable, the approximate amount of the debt, the number of days to respond, the intention to foreclose and options to avoid foreclosure. The servicer is required to start legal action within 6 months of the due and payable event. Servicers can request an extension from HUD beyond six months if requested by the heirs or executor of the estate. Two and possibly three 90 day extensions may be able to be obtained if intent and evidence is solid. HUD must approve all extensions so get your plan together and start making progress towards toward legally obtaining the ability to act by starting probate quickly or settling a living trust. Perhaps a family member would like to purchase the home and needs to get financing together or the home must be cleaned up and prepared for sale.
In some cases there is no equity remaining due to a drop in real estate values or in the case of a long term reverse mortgage where the loan balance is higher than the value of the home. The home may be purchased at 95% of the appraised value by a family member, or sold as a short sale at that price. Real estate agents could help initiate the short sale and avoid foreclosure. Or the estate may enter into a Deed in Lieu of Foreclosure if they don't want to be bothered with selling the home. Since the loan in non-recourse, the borrower, estate or heirs are not liable for amounts owed.
Until title is transferred either through sale or to the lender, maintenance and property charges including taxes, insurance and HOA dues is the responsibility of the estate. Communicate and work with the servicer… they really do want to help!