If you find yourself in the situation of inheriting a house with a reverse mortgage, it’s important to understand your options and take timely action to handle the outstanding debt. In this guide, we will discuss what it means to inherit a house with a reverse mortgage, the possible scenarios, and the steps you can take to resolve the situation.
Can You Inherit a House With a Reverse Mortgage?
Yes, it is possible to inherit a house with a reverse mortgage. If a loved one took out a reverse mortgage on their property and named you as the heir, you would inherit the home along with the reverse mortgage.
When the homeowner who had the reverse mortgage passes away, the reverse mortgage balance becomes due. This can be substantial because the homeowner does not have to make any loan payments during their lifetime. As the heir, you become responsible for ensuring that the mortgage is paid off.
Options for Handling an Inherited House with a Reverse Mortgage
The options available to you will depend on your relationship with the deceased person and whether you are a surviving spouse or another type of heir.
Surviving Spouse
If you are the surviving spouse and were either a co-borrower on the reverse mortgage or treated as an eligible non-borrowing spouse, you may not need to take immediate action. You can continue to benefit from the reverse mortgage payments. However, it’s important to understand that this will eventually affect your own heirs. The reverse mortgage and the house become part of your estate unless you decide to sell the house or pay off the loan.
Non-Spouse Heir
If you inherit a reverse mortgage property and you are not a surviving spouse or an eligible co-borrower, you will be responsible for paying off the loan. Ideally, the deceased person discussed the options with you before their passing and provided you with guidance.
There are typically three options for satisfying the reverse mortgage debt:
a. Sell the property: If you are not attached to the property, selling it and using the proceeds to pay off the mortgage is a viable option. You may even have additional funds if the house sells for more than the mortgage balance.
b. Keep the property and take out a forward mortgage: If you wish to keep the property, you can consider taking out a “forward” mortgage to pay off the reverse mortgage balance. This option depends on your ability to qualify for a new mortgage.
c. Pay off the mortgage and keep the property: If you want to keep the property in your estate, you will need to pay off the reverse mortgage balance in full. Ideally, the deceased person made arrangements for funds to cover this, such as through life insurance policy proceeds or liquidation of other assets. If not, you may need to use your own funds.
It’s essential to consult with professionals such as financial advisors, estate planners, and real estate agents to evaluate the best option based on your circumstances.
Timeline of Inheriting a House with a Reverse Mortgage
Inheriting a house with a reverse mortgage comes with a strict timeline that you must adhere to. The following timeline provides an overview of the key deadlines and milestones:
30 days: The lender receives notice of the borrower’s death and sends a Due and Payable notice to the decedent’s estate. This notice typically happens within 30 days of the death.
60 days: The heir receives a notice detailing the reverse mortgage debt and their options. Generally, they have 30 days to pay off the debt or take appropriate action. Surviving non-borrowing spouses can apply for a deferral through the Department of Housing and Urban Development (HUD) within this timeframe.
6 months: Within six months of the borrower’s death, heirs must make a decision on how to proceed with satisfying the loan balance. If no action is taken, the lender can initiate the foreclosure process.
1 year: Heirs can apply for two three-month extensions, approved by HUD, to delay foreclosure. This provides one calendar year from the borrower’s death to pay off the mortgage.
Commonly Asked Questions About Inheriting a Reverse Mortgage
You may have several questions when inheriting a house with a reverse mortgage. Here are answers to some commonly asked questions:
Can you sell a house that has a reverse mortgage?
Yes, selling the house is one of the key options when inheriting a property with a reverse mortgage. The proceeds from the sale will be used to pay off the reverse mortgage loan. If the house’s market value is lower than the mortgage balance, most reverse mortgages have a cap on the amount you need to pay, providing some protection.
Can a family member take over a reverse mortgage?
No, it is not possible to add a family member to an existing reverse mortgage. However, a surviving spouse may be eligible to continue receiving benefits by applying for a deferral through HUD, even if they were not originally on the loan as a co-borrower.
Can I walk away from a reverse mortgage?
Yes, you can walk away from a reverse mortgage by handing over the house to the lender through a process called a deed in lieu of foreclosure. This can save you time and effort, as the lender will handle the sale of the house to recoup the mortgage debt. However, if the house’s market value exceeds the loan balance, it may be more beneficial to sell the house yourself and keep the remaining proceeds.
Learn More About Reverse Mortgages
If you have recently inherited a house with a reverse mortgage, it’s crucial to take action promptly due to the strict timeline. To learn more about reverse mortgages and explore additional educational guides, consider visiting Trust & Will’s website or consulting with professionals in the field.
Inheriting a house with a reverse mortgage can be complex, but by understanding your options and seeking guidance, you can navigate the process and make informed decisions. Remember to consult with estate planners, financial advisors, and real estate professionals who can provide tailored advice based on your specific situation.
