If a house is a reverse mortgaged, does the estate inherit the house when the borrower and the non-borrowing spouse die?
No. The house mortgage with a “reverse” mortgage does not automatically pass to the inheritance. Upon the death of the people who lived in residence (the person who took the loan as the “non-borrowing spouse”), the heirs who form the estate have three options regarding the house:
- could you buy it?
- sell it
- deliver it to the creditor of the “reverse” mortgage
What should an heir who wishes to retain the house with a “reverse” mortgage do?
When the person who took the loan and the NBS die, vacate the property, or breach the contract terms, the loan becomes immediately due.
This means that the loan holder can sue them to foreclose on the property to pay what is owed. If the heirs wish to retain the home, they must pay the entire loan balance or 95% of the appraised value, whichever is less.
If the person heir wants to deliver or sell it to a third party, what happens if the balance of the debt is greater than the value of the house?
HECM mortgages are designed so that when a debt balance is greater than the home’s value, FHA insurance will cover the difference. So, the heirs will not have to pay the remaining amount themselves and with their own money.
How much time do you have to decide what you want to do with the house?
The heirs have 30 days from the moment they receive notification from the creditor that the debt is due and payable in arrears (known in English as the “due and payable request”) to decide if they want to retain the home, sell it or deliver it to the creditor. It is essential to do this as quickly as possible to avoid accruing interest.
Once you decide what you are going to do, whether to sell it or buy it, you can be granted a term of no more than one year to process the sale or obtain the necessary financing to pay off the debt and retain the house.
Can any heir contact the creditor regarding the loan?
No. It is essential that as soon as the person who took the loan knows that they will be leaving the property for whatever reason, they notify the lender who will be in charge of their financial affairs. Due to specific economic privacy laws, this management must be carried out before abandoning the property since creditors cannot do business with any person not authorized by the borrower to represent him.
Therefore, all borrowers must contact the creditor and deliver a written authorization confirming that their heirs are authorized to act concerning all loan matters. The borrower may also include their heirs in the title of the property without affecting the loan terms instead of submitting said authorization.
Do these options apply to all “reverse” mortgages regardless of the creditor?
No. These provisions apply only to “reverse” mortgages that are part of the “Home Equity Conversion Mortgage” (HECM). This program is part of the Federal Housing Administration (FHA), governed by federal regulations. The other entities that grant “reverse” mortgages have their terms and conditions regarding the heirs of a home burdened with a said mortgage. For this reason, the heirs must request a copy of the contract and educate themselves on the internal regulations to choose the best option.
