Reverse Mortgages In Probate Court: What Will Happen?

There are mixed opinions on reverse mortgages, with some people seeing them as a valuable lifeline for seniors, and others seeing them as an industry fraught with misrepresentation that prays on in-need senior citizens. Whichever it is, many people have reverse mortgages, and that means that many people stand to inherit property with reverse mortgages.

What is a Reverse Mortgage?

A reverse mortgage allows someone who has significant equity in property, to get paid from that equity. So, in effect, instead of paying a mortgage, the homeowner is getting paid from the equity; the reverse mortgage is essentially making the home’s equity liquid, and paying it out to the owner, usually in monthly installments.

Of course, every payment that is made, is lowering the equity in the property. For the senior citizen who has no plans on ever selling the house, this may not matter. But when others stand to inherit the house, it does matter, because there is often little or no equity in the home for them to inherit.

Foreclosing on Death

Most all reverse mortgages allow the bank to take back the property and foreclose, upon the death of the homeowner (the person who took out the reverse mortgage). This also can prevent beneficiaries from inheriting the home, and whatever equity may be left in it.

There is an exception for spouses who are on the loan, who can continue to receive the payments. But if a spouse is not a co-borrower, that spouse must get declared as a non-borrowing spouse by HUD. Otherwise, the property will end up in foreclosure—and the non-borrowing spouse, if he or she is still living there, can end up without anywhere to live.

Paying off the Loan

Non-spousal heirs have a tougher time. They are usually required to either pay off the balance of the loan, or else, pay off 55% of the appraised value of the property, whichever amount is more, in order to keep the property from being taken back by the bank. Payment must be made in 90 days, although opening a probate case can extend that time period.

Homeowners and borrowers can leave money in an estate plan to help beneficiaries do this, but realistically, if someone had a reverse mortgage in the first place, they may not have the money to leave to beneficiaries to just pay the loan off.

Often, non-spousal beneficiaries may need to refinance or take out another mortgage to pay off the amount that the reverse mortgage must be paid in order to allow them to keep the home.

If the home is worth less than what is owed on the property (a real scenario, as many senior citizens cannot or do not put a lot of money into keeping the property up to date), the beneficiaries could lose the home entirely to foreclosure, but won’t owe money on the home.

Do you have property that is subject to a reverse mortgage? If so, it’s even more important to do estate planning. Call the Torrance probate will and estate attorneys at Samuel Ford Law today.

Sources:

northcoastfinancialinc.com/refinance-reverse-mortgage-loans/

consumerfinance.gov/ask-cfpb/with-a-reverse-mortgage-loan-can-my-heirs-keep-or-sell-my-home-after-i-die-en-242/