Reverse mortgages allow older homeowners to tap into the equity in their homes to receive the cash they often need when living on a fixed income. These mortgages, however, are much more complicated than they seem. They have many restrictions and requirements and, as too many Floridians are learning, can be foreclosed on. Approximately 85,000 homeowners in Florida currently hold a reverse mortgage. Unfortunately, nearly 15,000 of them are facing foreclosure.
Traditional Mortgages vs. Reverse Mortgages
With a traditional mortgage, also sometimes called a forward mortgage, a borrower qualifies for a loan based on their income, employment history, and credit-worthiness. A lender, typically a bank, gives the borrower a large sum of money to purchase a piece of real estate. The borrower then repays the loan through monthly installment payments. If the borrower fails to continue making these payments, the lender will foreclose on the home.
Reverse mortgages, on the other hand, are designed for homeowners that own their home outright, typically after paying off a mortgage for decades. Sometimes, homeowners that don’t fully own their homes but have extensive equity can also qualify for a reverse mortgage. Reverse mortgages are only available to those who are 62 years of age or older and who use the home as their primary residence.
Reverse mortgages are sometimes called Home Equity Conversion Mortgages (HECM). The HECM program, run by the Federal Housing Administration (FHA), insures nearly every reverse mortgage in the country. This insurance guarantees that the lender will receive their money in full should the homeowner ever default on their loan.
The main difference that comes with reverse mortgages is that the homeowner does not make any payments while they live in their home. Instead, the lender provides them with a monthly payment, a lump sum, or a line of credit the homeowner can draw from whenever they need. While this sounds ideal to many homeowners, reverse mortgages are often dangerous and leave those most vulnerable without the home they’ve worked much of their lives for.
Reverse Mortgages and Triggering Events
Lenders that sell reverse mortgages entice homeowners with the idea of never having to make a payment until they pass away or move out of the home. Unfortunately, far too many homeowners don’t realize there are events that can suddenly require the borrower to pay back the total amount of the loan, plus interest. These are known as triggering events. Most often, they occur at a time in a homeowner’s life when they don’t have the extra funds to make payments. If they can’t, the lender will foreclose on the property.
One event that can trigger foreclosure is the death of the borrower. Many people realize that when they take out a reverse mortgage, the loan becomes payable upon their death. At that point, the heirs can repay the loan, often at a lower price than the mortgage balance, and keep the property. Heirs can also sell the property and use the proceeds to repay the mortgage. If surviving loved ones don’t take either of these options, they can then deed the property to the lender, or let the lender foreclose.
If the property is sold or transferred, that is also an event that could trigger foreclosure. If the homeowner transfers ownership of the home, such as to a relative, the mortgage becomes due and payable. When a property that has a reverse mortgage on it is sold, the escrow company will typically use the purchaser’s money to pay off the reverse mortgage.
An event many homeowners don’t realize will trigger foreclosure is if the borrower no longer uses the home as their primary residence. One of the criteria for a reverse mortgage is that at least one borrower remains in the home. If all borrowers move out of the home, they’ll have to pay the balance in full. They can also sell the home and use the proceeds to pay off the mortgage or complete a deed in lieu of foreclosure. If the borrower doesn’t take any of these actions, the lender can foreclose on the property.
Lastly, just like with a traditional mortgage, if a borrower fails to meet the obligations of a reverse mortgage, the lender can foreclose. Under the terms of a reverse mortgage, borrowers must typically stay up-to-date with property taxes, homeowners’ insurance, and property maintenance. When they fail to do so, this could be an event that could trigger foreclosure.
Deficiency Judgments and Reverse Mortgages
When a lender forecloses on a property with a traditional mortgage in Florida, they can seek a deficiency judgment against the borrower. This judgment attempts to collect on any debt remaining after the foreclosure sale price.
For example, a borrower owes a total of $250,000 on his mortgage when the bank forecloses. During a foreclosure sale, the home sells for $200,000. The borrower still owes $50,000, which is known as a deficiency. The lender may or may not try to get a deficiency judgment against the borrower to force them to repay the debt.
Deficiency judgments only apply to traditional mortgages; they don’t exist with reverse mortgages, even if the borrower has a deficiency after a sale.
How to Avoid Foreclosure with a Reverse Mortgage
No one wants to learn that they are facing foreclosure on the home they have worked to stay in their whole lives. Fortunately, if you have a reverse mortgage, there are things you can do to avoid foreclosure.
- Do not discard any communications from your lender. If you’re unsure of the wording or language in any document that’s sent, speak to someone who can explain it to you.
- When your lender sends you communication, promptly respond to it.
- Keep up to date on who is servicing your mortgage. The current servicer might be different than the lender you originally borrowed from. The servicer can also change many times.
The best way to avoid foreclosure when you have a reverse mortgage is to speak to a foreclosure defense lawyer. They can explain any documents your lender sends, and advise you further on how to avoid foreclosure.
Contact Our Florida Foreclosure Defense Lawyers Today
If you have a reverse mortgage and are in fear of foreclosure, call our Fort Lauderdale foreclosure attorneys at Loan Lawyers today. We know you have options and we’ll advise on which one is best for you. Call us today at (954) 523-HELP (4357) or contact us online for your free consultation.
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.