If the family members of a reverse mortgage borrower are on the cusp of losing their loved one, then there are certain steps that they should consider taking before the loan becomes due and payable when the borrower leaves the home. This is according to Michael Branson, president at All Reverse Mortgage in Orange, Calif., in a new “council” post at Forbes.
“If you have a reverse mortgage or have a family member who has a reverse mortgage, you need to arm yourself with this information,” Branson writes. “Even if you or your relative is not ready to move out of their reverse mortgaged property now, this can save you or your family a lot of grief later.”
Ensure the lender can communicate with proper heirs
As soon as it becomes clear that a borrower is going to leave the home under lien by the reverse mortgage, that borrower should take steps to inform the lender about who will be handling the borrower’s affairs prior to vacating the property, Branson says.
“Most people are not aware that the lender has restrictions — the lender cannot deal with anyone who is not authorized to speak with the lender on the borrowers’ behalf due to financial privacy laws,” he says. “Reverse mortgage borrowers should contact their lender as soon as they know who will be settling their affairs, give the lender written authorization to communicate with their heirs on all things relating to the loan and authorize them to act on all things relating to the loan.”
The borrower of the loan has the ability to add anyone to the property’s title without affecting the loan itself, as long as at least one of the original borrowers remains on the title, Branson says. Considering a family trust in which a borrower’s heirs are successor trustees is also an option, he writes.
“Check with your estate attorney, but if your heir is already on the title before you pass or it becomes a matter of a trust change and not a probation, you may be able to eliminate a huge delay for them when settling the property,” Branson says. “It may still require a probation action, but your attorney will advise you on that. Your heirs cannot sell or take out a new loan unless they hold title to the home.”
Heirs should also know where the borrower keeps all of their reverse mortgage statements and associated documentation, Branson says.
Taking quick action
Taking action as soon as is possible is always advised, Branson says. When the moment comes for the borrower to vacate the property, the heirs need to make a decision as quickly as possible to either keep or sell the home, or allow the lender take it back. Doing so quickly will avoid piling up interest and fees, which avoids the risk of foreclosure unless the heirs seek the lender to take possession of the property.
“The best initial step is for heirs to take the most recent reverse mortgage statement the borrower received from the lender and review the outstanding balance on the statement (hence why we talked about knowing how to access them),” Branson writes. “Contact a local real estate professional and determine from local sales of similar homes the most probable selling price of the home.”
If any equity remains, then it is likely in the best interest of the heirs to either keep or sell the home, he says. If the family decides to keep the home, then the reverse mortgage will have to be repaid.
Read the piece at Forbes.