How to Avoid Foreclosure with a Reverse Mortgage
The Cummings Company has listings for foreclosures, as well as reverse mortgage foreclosures. Many of our clients are familiar with a regular foreclosure, but have not heard of a reverse mortgage foreclosure and other foreclosure terms. Once you turn 62, you are eligible to take out a reverse mortgage on your home. With a reverse mortgage, homeowners are able to tap into the equity in their homes to provide cash to help meet retirement expenses. Under certain circumstances, reverse mortgages can be foreclosed. Read on to learn more about reverse mortgages and when the lender can foreclose.
Since reverse mortgage borrowers don’t have to make payments, foreclosure rarely comes into play. But there are occasions when a foreclosure is used with a reverse mortgage.
Before a reverse mortgage can be foreclosed, it must first be due and payable. The often quoted times when a reverse mortgage is due and payable is when:
- The borrower sells the home.
- The borrower moves.
- The borrower dies.
Other occasions are when:
- The borrower refuses or cannot pay property taxes or homeowner’s insurance.
- The property is in disrepair and the borrower refuses or cannot make repairs.
Before any foreclosure action, the lender will issue a repayment notice advising the borrower that the loan is now due and payable. If the borrower can correct the deficiency (move back in, pay the taxes or insurance, or repair the property, the loan can continue as it was). At about the same time, the lender will stop any payments the borrower may be receiving and will freeze any funds in the Line of Credit. If corrections are not made, foreclosure could begin in one to three months.
Let’s look at the 5 typical possibilities:
- The borrower sells the home. It would be unusual for foreclosure to be needed. In most sales, escrow is used. The escrow office will accept the money from the buyer, pay off the reverse mortgage along with any other liens or costs and give the left over funds to the seller. If a borrower sold a home to someone without going through escrow, there could be an issue. It might be innocently done when selling to a relative. It might also be done fraudulently by selling to a relative while wishing to keep access to the reverse mortgage funds or payments. When the lender learns of this (they have ways), they would issue the due and payable repayment notice and then move on to foreclosure.
- The borrower moves. If the last surviving borrower moves into a care facility, they have a 12 month grace period. If they haven’t returned to the home after the 12 months, the repayment notice would be sent. If the borrower moves and changes their principle residence (perhaps even renting the home with the reverse mortgage on it) the repayment notice would go out as soon as the lender learned of this.
- The borrower dies. Typically, there aren’t any issues here. In most cases the heirs will sell the home and the lender will be paid off through escrow. The time frame for the heirs to sell the home is fairly generous. They initially have 6 months. If they follow some simple guidelines and request an extension, HUD may allow two 90 day extensions. This assumes the heirs are making a valid attempt to sell the home. The extensions are handled on an individual basis based on the facts. If the heirs determine that the home is worth less than the amount of the loan, they may not wish to go through the sale process knowing they would receive no money. When notified, the way the lender would collect the collateral (the home) would be to begin the foreclosure process.
- The borrower refuses or cannot pay property taxes or homeowner’s insurance. If there are still funds available in the reverse mortgage, the lender will advance funds to pay the property taxes or insurance. Lenders wouldn’t like to foreclose on a little old lady due to a few hundred dollars for insurance. Effective January, 2011, HUD stopped allowing lenders to advance funds if not available in the line of credit. Also, effective January, 2011, HUD began requiring lenders to start the foreclosure process for borrowers behind on their property taxes and homeowner’s insurance. Prior to actual foreclosure, they are required to try to create a workout process, sometimes with monthly payments over a couple years, to bring the taxes and/or insurance current.
- The property is in disrepair and the borrower refuses or cannot make repairs. This may be handled the same as the taxes and insurance. However, the disrepair could be a health or safety issue. Depending on the dollars and condition of the home, foreclosure may be the only choice.
Many of our clients ask us what happened to the owners of a foreclosure listing. We don’t know. We can’t tell you what happened to the owners. We can’t tell you how long the property has been sitting vacant. We can’t tell you any details. All we know is that the lender, mortgage company or REO Company has contacted us to list the house. The Cummings Company is the last link in the foreclosure process. If the property did not sell at auction, the REO Company will hold the property until they are ready to list with a real estate firm. We will list and market the property for them. Give us a call at The Cummings Company, 251-602-1941, and let us show you all the available properties listed in Mobile and Baldwin Counties. We are here to help you find your new home.