Allow foreclosure: Heirs are not held responsible for a reverse mortgage loan and can walk away from the property without owing anything. As mentioned earlier, if the home is worth less than the loan amount, that is the lender’s responsibility and why a borrower pays into a federal insurance fund.
Reverse mortgages are complicated loans, so borrowers and their heirs need to understand how to repay the loan when it comes due. By knowing and talking through the options in advance, reverse mortgage borrowers and their family members can decide what option makes the most sense for them.
Thus, foreclosures on a reverse mortgage mean something entirely different than foreclosures on a forward mortgage. On a forward mortgage, foreclosure arises from failure of the borrower to make required monthly payments of principal and interest, and it almost always involves a forcible eviction.
Of course, that wouldn’t make sense with a reverse mortgage that carries no monthly repayment obligation. So, it’s understandable why homeowners, their heirs, and the media are often confused when they see that reverse mortgage foreclosures happen from time to time. WHY WOULD A REVERSE FORECLOSURE OCCUR?
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Reverse Mortgage Repayment. Reverse mortgages are repaid in several different ways. In addition to the estate of the deceased, heirs to the reverse mortgaged home can also repay the loan in full.
There is no data on how many heirs are facing foreclosure because of reverse mortgages. But interviews with elder-care advocates, housing counselors and heirs, suggest it is a growing problem already.
A reverse mortgage allows a senior homeowner to borrow against the value of her home and not worry about making payments on the loan. However, when the homeowner passes away, the reverse mortgage lender will require the repayment of the outstanding loan amount. The estate executor and heirs of the deceased homeowner.
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Until Aug. 2014, reverse mortgages only protected the borrower from foreclosure, even if there were a non-borrowing spouse. Lenders regularly remove a (younger) spouse from a deed when closing a HECM because: The younger spouse is not yet 62; higher loan proceeds (and origination fees) if remove younger spouse.