What Happens to a Reverse Mortgage After the Borrower’s Death

What Happens to a Reverse Mortgage After the Borrower's Passing?

One of the most common questions surrounding the reverse mortgage loan is “what happens to my home after I pass away?” The truth is that when a borrower with a reverse mortgage passes away, several things happen depending on the terms of the loan and the situation of your heirs. In this article, we’ll outline what you and your family can expect in this situation.

When the last surviving borrower on a reverse mortgage loan passes away, the loan becomes due and payable. The amount due is equal to the full loan balance, which is the sum of the borrowed amount, interest, and other charges. Your heirs will have options to consider, such as:

• Option 1 - Sell the Home: The heirs can choose to sell the home to pay off the reverse mortgage debt. If the sale price is more than the amount owed on the reverse mortgage, the excess proceeds will go to the heirs.
• Option 2 - Pay Off the Loan and Keep the Home: Heirs may also choose to pay off the reverse mortgage by refinancing the loan or using other assets to pay off the balance. If they do so, they can keep the home.

It’s important to contact your servicer immediately to learn more about timing and all options available.

5 Things to Know About

1. Notification of Death
   Upon the passing of the last surviving borrower, the servicer must be notified. This can be done by a family member, the executor of the estate, or an attorney.
2. Estate Responsibility
   The responsibility of repaying the loan falls onto the estate of the deceased borrower, which is usually handled by a representative known as the executor.
3. Repayment Options
   The estate has several options for repaying the loan, including selling the property, paying off the loan with other assets (this is typically done to retain ownership and pass the home to another family member), refinancing the loan, or allowing the lender to retain the property as repayment. If the sale of the property does not cover the loan balance, the estate is not responsible for the difference. This is covered by the “non-recourse” feature of a reverse mortgage.
4. Reverse Mortgage Insurance Premium (MIP)
   Home Equity Conversion Mortgages (HECMs), are the most common type of reverse mortgage and are insured by the Federal Housing Administration (FHA). This insurance protects the estate from owing more than the property's value.Our jumbo reverse mortgage, the Smartfi^® Choice, does not have MIP. However, it still has the non-recourse feature that protects the estate from owing more than the property's value when the loan comes due.
5. Time Frame for Repayment
   Upon the last surviving borrower’s passing, the estate must begin communication with the Servicer as soon as possible. Generally, the estate will need to use any of the repayment options listed above to repay the loan balance within six months of the date of death. However, up to two 90-day extensions may be granted, as long as the following are met:
   • Communication with the Servicer began early in the loan repayment process
   • Specific documentation is submitted to support the need for the extension(s)

   If repayment does not occur within the timeframe allowed, then the lender will retain the property as repayment. Exact repayment rules and requirements may differ depending on the state the property is located in.

Summary

In conclusion, a reverse mortgage loan must be paid back after the passing of the last surviving borrower. The estate is responsible for repaying the loan, and has several options for doing so, including selling the property, paying off the loan with other assets, or refinancing the loan. Typically, the loan is repaid within six months of the date of death, but extensions may be granted. You and your family should always speak with your attorney and/or financial advisor to determine loan repayment for your specific circumstance. The estate is generally not held responsible for any loan balance above the property’s value, thanks to the non-recourse feature of the loan.

A reverse mortgage should be used responsibly and is not the right choice for everyone, but it may be a good option for those who are near or in retirement wanting more financial freedom and stability. Before making this decision, it is recommended that you talk to your family members and/or financial advisor.

If you are ready to get the process started, contact us today at (858) 389-4214.

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