When a reverse mortgage borrower dies, the loan becomes due and payable. For the borrower’s adult children, that means resolving questions about how to pay off the loan — and doing so relatively quickly, Bankrate writes in a recent article.
A reverse mortgage servicer uses a number of resources to find out when borrower dies, including the Social Security death index, proprietary databases and annual occupancy letters, the article states.
Once the servicer discovers the borrower has died, the reverse mortgage becomes due and the servicer sends out a letter intended to inform the heirs of the rules of the loan and ascertain their intentions for the loan and property, Beth Paterson, a certified reverse mortgage professional at Reverse Mortgages SIDAC, tells Bankrate.
While the heirs aren’t required to sell the home to pay off the reverse mortgage, if they want to keep the home they’ll have to pay off the loan, Cara Pierce, a housing and reverse mortgage counselor at ClearPoint Credit Counseling Solutions, tells Bankrate.
“If they want to get a loan in their own name and pay off the reverse mortgage, they can,” Pierce says. “But if they can’t and there are no other assets, like life insurance, other property or a 401(k), that they could use to pay off the loan, they will have to sell the property.”
Alternatively, if the reverse mortgage borrower was married, the surviving spouse might be able to remain in the home even if he or she wasn’t a co-borrower, Sarah Mancini, an attorney at the National Consumer Law Center, tells Bankrate.
Recently, the Department of Housing and Urban Development issued new guidelines that give these non-borrowing spouses expanded opportunities to remain in their homes.
In this case, surviving spouses should consult an attorney to interpret their rights and options if they want to continue to live in the home, Bankrate notes.
“There are serious legal issues and possible grounds for a legal challenge if the lender forecloses while there is still a surviving spouse,” Mancini says.
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Written by Emily Study