Most people are aware of how traditional mortgages work. A borrower takes out a home loan to purchase a house and that loan is payable within a certain amount of time. That amount of time is typically between 15 to 30 years, but payments are made on a monthly basis. Another type of mortgage, though, works very differently. These are reverse mortgages and, while they may sound extremely beneficial at first, they have many pitfalls that anyone considering must be aware of.
What Is a Reverse Mortgage?
A reverse mortgage allows older individuals to leverage the equity in their homes in order to receive cash. Unlike other mortgages, a reverse mortgage is not due right away but rather, these loans are due when the borrower passes away. When these loans are not paid after the death of the borrower, the lender can foreclose on the home.
Most reverse mortgages are insured by the Federal Housing Administration’s Home Equity Conversion Mortgage (HECM) program. However, this insurance protects the lender, not the borrower or their family. When this program does not insure a reverse mortgage, it is typically because the mortgage was created by a private lender.
Although most reverse mortgages are not due until the borrower passes away, there are other triggering events that may also occur that make the loan payable.
The Death of the Borrowers
In most instances, a reverse mortgage becomes payable when the borrowers who were living inside the home have died. When this is the case, the heirs may keep the property by paying off the loan, they can sell the home, deed the property to the lender, or allow the lender to foreclose. When heirs do want to keep the home, it is often a very frustrating process because lenders make it very difficult and the servicer may not communicate or be as available as the family members would like.
When a reverse mortgage is insured by HECM and the spouse remains in the home after the borrower passes away, the spouse can sometimes remain in the home. This is the case when the loan payments are deferred, which can happen when certain criteria are met. What happens in these situations largely depends on whether the reverse mortgage was taken out before or after August 4, 2014.
The Property Title Is Transferred to Someone Else
In most cases, a reverse mortgage is not considered due as long as the borrower remains in the home, and remains the owner of the property. Due to this, if the borrower sells the home, the loan is then payable. Additionally, if the borrower transfers the title of the property, as people sometimes do when they want to transfer ownership of the home to a family member, the reverse mortgage is also due.
The Borrower Does Not Live in the Home
When a reverse mortgage is insured by HECM, the loan becomes due and payable if the borrower no longer lives at the residence. The borrower must leave the property and use another home as their primary residence. If there is another borrower and that person remains in the home, the reverse mortgage is not considered due and payable. In the case that the borrower or borrowers leave the home, the loan becomes payable and anyone with an interest in the home, such as relatives, have all the same options they would if the borrower passed away.
The Borrower Suffers from an Illness that Keeps Them Out of the Home
When the borrower suffers from either a physical or mental illness that forces them into another property, such as a nursing home, they can only remain on that property for up to 12 months. If the borrower remains out of the home for longer than 12 months due to an illness, the loan is considered due and payable.
The Borrower Does Not Uphold Their Obligations of the Loan
When taking out a reverse mortgage, the borrower will still have certain obligations they must meet. These include paying the property taxes, maintaining adequate homeowners’ insurance, and making sure the property is kept in good condition. In the event that the borrower does not uphold these obligations, they will be in violation of the mortgage and the loan will become due and payable. Before foreclosing, however, the lender must typically provide the borrower with the opportunity to fix the deficiency. For example, if a borrower fell behind on their property taxes and the lender wanted to foreclose, they must provide the borrower with the opportunity to bring their property taxes up to date.
There Are No Deficiency Judgments with Reverse Mortgages
With a traditional mortgage, when a borrower does not meet the terms of the loan, the lender can foreclose. After the home is sold, the borrower may then still be liable for any difference between the sale price of the home and the amount still left on their mortgage. This is known as a deficiency judgment. It is important that borrowers who take out a reverse mortgage understand that these do not include deficiency judgments so, while the lender can foreclose on the home, they cannot hold borrowers liable for paying additional money than the amount of the loan.
Talk to Our Florida Foreclosure Defense Lawyers Before Taking Out a Reverse Mortgage
Reverse mortgages often sound very attractive to homeowners, particularly because the companies that offer them focus on the benefits and neglect to tell the homeowner of the obligations they will have and the different terms. It is for this reason that anyone who wishes to take out a reverse mortgage should first speak to a Fort Lauderdale foreclosure defense lawyer.
At Loan Lawyers, our foreclosure defense attorneys will always look out for your best interests and ensure that lenders are acting legally and upholding your rights. When you are facing foreclosure of any kind, call us at (954) 523-HELP (4357) or contact us online to arrange a free consultation and to learn more about how we can help.
Loan Lawyers has helped over 5,000 South Florida homeowners and consumers with their debt problems, we have saved over 2,000 homes from foreclosure, eliminated more than $100,000,000 in mortgage principal and consumer debt, and have recovered over $10,000,000 on behalf of our clients due to bank, loan servicer, and debt collector violations. Contact us for a free consultation to see how we may be able to help you.