What to Do When You Inherit a Home With a Reverse Mortgage

Reverse mortgages have a dichotomy to them. On the one hand, they are definitely a “need now” product, in that they help someone of advancing age pay their bills or live the lifestyle that they want to live in, right now. But by doing that, reverse mortgages can also negatively affect beneficiaries, those who may inherit the home later on.

Understanding Reverse Mortgages

In its simplest term, a reverse mortgage allows a homeowner to borrow against the equity in their home. The bank makes payments to a homeowner, or a series of payments, over the course of time. Those payments don’t have to be paid back, absent certain extenuating circumstances.

But every payment is taking away from or subtracting from the equity in the home. Once a homeowner gets $1,000 from a reverse mortgage payment, the home has $1,000 less in equity.

For those who take out the reverse mortgages, this may be no big deal; they are often older, will not be selling their home, and they don’t care so much if their home has little or no equity.

Inheriting a Reverse Mortgage Property

But if you inherit a home with a reverse mortgage, you’re at the wrong end of that equation. But it gets worse; most reverse mortgages have a provision that upon the death of the homeowner, the entirety of the balance of the remaining loan becomes immediately due and payable.

In a bad situation, you’re inheriting a home that now has little or no equity. In a worse situation if you are living there but you’re not a borrower, you’re going to get kicked out of the home by the bank, when it forecloses, assuming you or the estate doesn’t have the funds to pay off the remaining loan balance.

Paying Off the Balance

If timing works out, you may have the option of selling the home, paying off the mortgage, and retaining any remaining equity. You will have to have the probate court put the property in your name to sell it, or else, the estate will be considered the seller.

But that’s if you can get that done before the bank forecloses. With good communication, many lenders will hold off on foreclosure, if they see you’re making a good faith effort to sell the property.

You can just get your own loan, and buy the property yourself, so long as you’re paying off the entirety of what is owed to the lender.  However, that could be a sizable amount, depending on how much equity the now-deceased original borrower took out from the property for the reverse mortgage payments.

In no situation will anybody who inherits, be personally liable to the bank, or owe any money out of their own pocket, no matter what option that they choose, assuming they aren’t on the original mortgage loan.

Need to handle real estate matters in probate court?  Call the West Palm Beach probate lawyers at The Law Offices of Larry E. Bray today for help.

Source:

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