It is possible to lose your home if you fail to pay property taxes or homeowners insurance or don’t maintain your home.
Could I lose my home?
Yes, it is possible. Borrowers can default on a reverse mortgage, and possibly lose their homes, if they fail to meet certain loan terms, including paying property taxes, having homeowners insurance and maintaining their homes. That sometimes happens when borrowers take a lump-sum payout and later run out of money to pay taxes, insurance and upkeep.
A growing number of such reverse-mortgage defaults over the last few years has prompted the government to require more underwriting of borrowers to make sure that they can pay ongoing obligations and to tighten procedures governing foreclosures prompted by delinquencies involving FHA-insured mortgages.
Some companies have tricked consumers into believing they could not lose their homes with a reverse mortgage. So let’s make this very clear — yes, you could lose your home if you fail to pay property taxes or homeowners insurance or you don’t maintain your home with regular upkeep.
A reverse mortgage will not affect your Social Security, Pension, or Medicare benefits. It could only affect Medicaid.
Will it affect my benefits?
A common concern you may have with a reverse mortgage is will your benefits be affected when you receive a reverse mortgage? Will you still be able to collect Social Security? Will your pension be affected? What happens to your Medicare or Medicaid benefits? There are a lot of myths about what happens to your benefits, so here are the facts.
Social Security: A reverse mortgage does not affect your Social Security benefits. You will still be able to receive your benefits and they will not change once you have your reverse mortgage. You have been paying into your Social Security while you have been working, and receiving a reverse mortgage will not affect your benefits.
Pension Benefits: Your pension benefits are something you established with your employer and this cannot be affected by receiving a reverse mortgage.
Medicare Benefits: In 1965, Congress created Medicare under a part of the Social Security Act to help seniors with healthcare costs. Medicare was a way to provide health insurance to people age 65 and older. Like Medicare, a HECM reverse mortgage is a government-backed program that helps seniors financially. You keep your Medicare benefits when you receive a reverse mortgage, and vice versa.
Medicaid Benefits: The only thing that could possibly be affected with a reverse mortgage is your Medicaid benefits. Medicaid eligibility requires applicants to have no more than $2,000 ($3,000 for a couple) in assets on any day out of the month. Although this will not affect your eligibility to obtain a reverse mortgage, you may not be able to receive your Medicaid benefits.
Your spouse can remain in the home and the loan repayment will be deferred.
What if my spouse survives me?
Historically, the amount you can borrow with a reverse mortgage has depended on a number of factors, including the age of the youngest borrower. If your spouse was considerably younger than you, you’d get less money with a reverse mortgage if you included him or her on the loan.
Because of this, mortgage brokers sometimes advised homeowners to quitclaim the property to the older spouse and leave the younger spouse off the mortgage to increase the amount of the loan. In many instances, brokers misled younger spouses by assuring them that they would be able to remain in the home after the borrowing spouse died.
However, once the borrower died, the surviving spouse (who was not named on the loan) was often shocked to learn that the loan had to be repaid immediately or else the lender would foreclose on the property.
This changed with the Bennett ruling, and in August 2014, HUD updated its loan rules to state that the non-borrowing spouse may remain in the home after the HECM borrower dies (and the loan repayment will be deferred) so long as:
- the non-borrowing spouse is married to the borrower at the time of the loan closing (and remains married to the borrower for the duration of the borrower’s lifetime)
- their spousal status is disclosed at the time of the closing
- the non-borrowing spouse is named in the loan documents
- the non-borrowing spouse has occupied, and continues to occupy, the property securing the HECM as his/her principal residence
- the non-borrowing spouse establishes legal ownership (or another ongoing legal right to remain in the home) within 90 days of the death of the last surviving borrower, and
- the non-borrowing spouse meets all of the obligations described in the loan documents.
Yes, after the last surviving homeowner passes away or moves out, the heirs will have several options to retain ownership.
Can I leave my home to my heirs?
Yes. After the last surviving borrower or remaining eligible non-borrowing spouse passes away, or permanently leaves the home, there are several different ways the loan can be repaid. The heirs or estate can:
- Sell the property and use the proceeds to pay the loan balance;
- Use personal funds or gifted money to repay the loan;
- Purchase the property for 95% of the appraised value;
- Provide the lender with clear and marketable title to the home through a “deed in lieu of foreclosure. This means the heirs would sign a deed to the lender surrendering the keys to the property, and they would no longer have to do anything else with that property.
With regards to inheritance, reverse mortgage loans are not assumable and heirs cannot take possession of the home until the debt is satisfied either by:
- Repaying the loan with personal funds;
- Funds from the estate, if available;
- Or by obtaining separate mortgage financing, if they qualify for such financing at that time.
Once the loan becomes due and payable, the lender will send a letter, called a demand letter, that explains the process and timelines for repaying the loan to the heirs. The lender will work with the heirs and communicate the following options:
After the last surviving borrower or remaining eligible non-borrowing spouse passes away, or permanently leaves the home, there are several different ways the loan can be repaid: The heirs or estate can:
- Sell the property and use the proceeds to pay the loan balance;
- Use personal funds or gifted money to repay the loan;
- Purchase the property for 95% of its appraised value (known as a short sale);
- Provide the lender with clear and marketable title to the home through a “deed in lieu of foreclosure.”
Once the demand letter is provided, your heirs will have 30 days from the date of that demand letter to choose one of those options. This also means your heirs will have plenty of time to remove your personal property from your home.
A reverse mortgage is a “non-recourse” mortgage loan. “Non-recourse” means that neither the homeowner nor the heirs will ever owe more than the sale price of the home. The lender’s that own this loan while you have it have no other recourse but the property itself, so they can’t go after the heirs for money or anyone else if the property is upside down.
An example of that is if you have a market crash and the value is $200,000 but you owe $300,000 on the reverse mortgage that you borrowed — you don’t have to pay that loss, and your heirs don’t have to pay that difference. It is a “non-recourse” loan so the FHA’s mortgage insurance will step in and cover that loss.
Heirs typically have 30 days to repay the loan, but this can be adjusted if the heirs show good intent.
How long do my heirs have to repay?
Normally the heirs have 30 days to repay the loan after someone passes and the loan becomes due and payable. The lender will provide a 30-day demand letter and the heirs choose an option to repay. 30 days sounds like a very short period of time to repay the loan. What this really means is the heirs or estate have 30 days to contact the lender and make arrangements in good faith. HUD just doesn’t want the property to be deteriorating while it sits vacant. They want someone looking after the home and working diligently to resolve the situation. This 30-day period can also extended.
It is important to be aware that this “30-day demand letter” may include some harsh language and scare some people, but this language is required by HUD. If the heirs follow up with the lender, and it is their decision to buy the house and they need to arrange financing, or they are putting the house up for sale and they can show progress in doing so like listing it with a realtor, the lender can give them an extension. The lender can initially give them up to six months if the good faith effort is there, and two more three-month extensions after that to pay off the loan. So there is some flexibility, but it is only there if the heirs or the estate openly work with the loan servicer on it.
Your loan will become due and payable after 12 consecutive months of non-occupancy.
What if I move to a care facility?
If you get a reverse mortgage and then circumstances dictate that you need to move to a care facility of some type, what happens?
This depends on several factors including whether you are married and your spouse is a co-borrower, and whether you are moving temporarily or permanently out of the home.
So if both the husband and the wife are on the loan, and one of them has to go to a care facility, that does not call this loan due and payable. As long as the co-borrower is still in the home, living there as a primary residence, they’re fine.
With regard to illness, if it’s a single borrower and the move to a care facility is permanent (longer than 12 months), the loan will need to be repaid with outside funds or by selling the home. For married borrowers, the spouse can continue living in the home even if the co-borrower is moved permanently to a care facility. For a non-borrowing spouse, they cannot continue living in the home if their spouse is moved permanently to a care facility.
You can live outside your home for up to 12 consecutive months.
What if I live with my family for a while?
The borrower can live outside the home for up to 12 consecutive months — after this, the loan becomes due and payable.
There is a requirement of HUD that the lender has to certify your occupancy annually. So if you vacate the property for an extended period of time, it is a good idea to notify your lender. If your lender sends an occupancy certification form while you’re gone and it comes back undeliverable, then the lender may assume you are no longer living there and make a second attempt. After the second attempt the lender will order a property inspection to see if it’s occupied.
It’s critical to notify your lender if you leaving your home for an extended period of time, and avoid the loan becoming due and payable.
This is your right to cancel if you feel uncertain right after signing the documents.
What is the Right of Rescission?
When obtaining a reverse mortgage, it’s important to understand not only your obligations, but also your rights. One of those rights is the Right of Rescission.
Often referred to as a cancellation clause, the Reverse Mortgage Right of Rescission is just that. If for any reason you are unhappy with your decision and wish to cancel the reverse mortgage, you have 3 business days to do so. That’s 3 days after you’ve already signed the documents and have technically already received the reverse mortgage. Best of all, there are no cancellation fees associated with such a cancellation. The lender must return all of the closing costs, minus any interested on any funds that you have already received.
If you wish to exercise your right of rescission, simply contact the lender in writing within 3 business days of closing on the mortgage. Send the request using certified mail and save a copy for your records. Once the lender receives your notification they have 20 days to return any unused funds after they have retained a portion for the financing you received within the three-day window.
A list of third-party reverse mortgage counselors is available.
How do I find a third-party counselor?
Every lender must provide a list of third-party counselors that are available nearby or by phone.
You can search the HECM Counselor Roster to find a HECM counselor near you, or call (800) 569-4287.
You may also contact a HECM counselor from FHA’s National HECM Counseling Network. These counselors provide both face-to-face and telephone counseling nationwide.
If you want further assistance, you can contact the FHA Resource Center.
Yes, HECM reverse mortgages are monitored and insured by the U.S. Federal Government.
Can a reverse mortgage loan be trusted?
Here are some points to consider:
A HECM reverse mortgage is an FHA-insured loan. This means the FHA is monitoring the activity of those who do these loans.
All HECM reverse mortgage loan borrowers must meet with an independent third-party counselor before applying for the loan. These counselors make sure that seniors are not being pressured, mistreated, or taken advantage of.
Scams, fraud, and financial exploitation of older adults are considered elder abuse.
Since 1996, CB Investments has helped countless seniors enjoy a stable and secure retirement. To date, our company has processed over $1.5 billion in loans. Our team of reverse mortgage professionals will assist and guide you through every step of the loan process and provide the necessary information to help you make an intelligent decision.
300 Pacific Coast Highway, Suite 301
Huntington Beach, CA 92648
© 2017 CB Investments, Inc.
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