Personal finance website Money.com is offering basic product information and a series of frequently asked questions about reverse mortgages, but is also aiming to provide information to potential borrowers about what happens at the end of a reverse mortgage when a borrower leaves the home.
“Inheriting a home with a reverse mortgage attached to it can be challenging,” the column reads. “Heirs must decide whether to pay off the reverse mortgage out of pocket (or with another loan) and keep the property or sell the home and use the sale proceeds to repay the balance.”
It goes on to describe the nature of the non-recourse feature of a Home Equity Conversion Mortgage (HECM) as sponsored by the Federal Housing Administration, and when FHA insurance would kick in should the loan go underwater.
The column also describes how heirs typically have 30 days to pay off the loan balance after the borrower leaves the home, and the extension that can be requested for up to a year in the case of a HECM. It also describes how to “get out” of a reverse mortgage.
“There are many ways to get out of a reverse mortgage. If you’re within three days of closing, you can exercise your right of rescission and cancel your loan,” the column explains. “You’ll need to do this in writing, but once received, your lender has 20 days to refund your costs and fees.”
Getting out of the loan after that time allows for a borrower to pay off the loan balance as they see fit, but fees are not refunded. Borrowers can also choose to refinance the loan from a HECM back into a traditional mortgage, presuming they’re aware of the returning need to make regular mortgage payments once more.
Because the reverse mortgage industry is dedicated to serving the protected class of seniors, bad actors may aim to present themselves illegitimately as representatives of a reverse mortgage company in order to take advantage of seniors and their finances, the column explains.
“Reverse mortgages have been used to scam homeowners in the past. In many cases, the targeted individuals are not told that property taxes, insurance and home repairs must continue to be paid for, causing them to default on the loan — and resulting in an easy payday for the unethical lender,” the column reads.
Scammers also commonly aim to pressure seniors into using their loan’s proceeds for some kind of illegitimate investment opportunity, the column explains. Practices of scammers posing as reverse mortgage professionals have been the subjects of numerous notices and warnings to consumers by the federal government.
Earlier this year, the U.S. Department of Housing and Urban Development (HUD)’s Office of the Inspector General (OIG) released a fraud bulletin profiling common tactics used by such criminals.
“Typically, HECM borrowers do not realize it was a scam until they hand over the funds and the investment, service, or product is never provided,” the bulletin reads.
Read the column at Money.com.