A reverse mortgage is a mortgage taken by an elder homeowner, wherein the lender gives a mortgage on the property, often with a cash out to the owner. The terms of the reverse mortgage call for no payments while the homeowner resides on the home, except for taxes and insurance, rather the principal and interest get added to the balance every month. This frees up social security or other income of the debtor/homeowner to use during their lifetime. The catch is that upon the owner/borrowers death, the bank can take the home, sell it and satisfy the debt. In old times, the heirs were permitted to go out to another lender and seek a refinance in order to pay the reverse mortgage lender and satisfy the debt. However, in the crash of the real estate and mortgage industry, often the property value at the time of the death, were well below what was owed to the reverse mortgage lender, causing the refinance to become an impossibility.
After 2009, reverse mortgage lenders began loosening the rules and allowed settlements of their reverse mortgages with heirs, because they were aware of the inflated prices and impossibility of refinancing. Heirs were then permitted to request an appraisal and the reverse mortgage lender will often agree to take between 95% to 98% of the fair market value, forgiving the balance of the deficiency or remainder.
Recent FHA policy helps the heirs even further. A new policy by the FHA on Thursday under the Home Equity Conversion Mortgage Program calls for delays for lenders seeking to foreclose on homes where the reverse mortgage borrower has become deceased. The new law allows the lender to assign the loan to HUD and thus HUD would then work with the non-borrowing spouse to remain in the house.
The new policy is great news for heirs of borrowers on reverse mortgages as it opens the door for them to remain in the home and work out a loss mitigation option with the lender. Such options can include an assumption or a modification in terms of the mortgage, or a settlement.
At The Law Offices of Jacqueline A. Salcines, P.A. our extensive accounting and legal background has given us an opportunity to negotiate these reverse mortgage favorably for our clients, so that they can keep the home that means so much to them and their loved ones.
Call me today to discuss your situation and see if the new FHA policy will protect you. The first consultation is free of charge.