Whether you have a HECM or NOT, this reminder is that as one gets older, sometimes we forget important stuff — like property taxes. Counties aren’t very good about keeping you informed. It’s always smart to check into county records from time to time and make sure your taxes are paid. Consequences can be horrific.
Such is also true if you have any kind of mortgage.
Once a triggering event occurs, the reverse mortgage loan becomes due and payable. A reverse mortgage loan becomes due and payable when one of the following circumstances occurs:
All borrowers have died. When this happens, the heirs have several options. They may choose to:
- repay the loan and keep the property (generally, with a HECM, the heirs may pay the lesser of the mortgage balance or 95% of the current appraised value of the home)
- sell the property (for at least the lesser of the loan balance or 95% of the fair market value of the home in the case of a HECM) and use the proceeds to repay the loan
- deed the property to the lender, or
- abandon the property and let the lender foreclose.
(If you take out a HECM and have a non-borrowing spouse, your spouse may be able to remain in the home after you die, and the loan repayment will be deferred, so long as certain criteria is met. The rules are different depending on whether you took the loan out before or after August 4, 2014. Learn more in Nolo’s article New Rule – Spouses Not Named on Reverse Mortgages Are Protected From Foreclosure.)
The property is sold or title to the property is transferred. If the home is sold or title transferred, the loan becomes due and payable. Generally, if the property is sold, the escrow company will accept the purchaser’s money and pay off the reverse mortgage along with any other liens on the property. If you transfer ownership of the home—for example to a relative—the loan becomes due and payable.
The borrower no longer uses the home as a principal residence. The borrower can be away from the home (for example, in a nursing home facility) for only up to 12 months due to physical or mental illness; however, if the move is permanent, then the loan becomes due and payable.
The borrower fails to meet the obligations of the mortgage. The terms of the mortgage will require the borrower to pay the property taxes, maintain adequate homeowners’ insurance, and keep the property in good condition. (In some cases, the lender might create a set-aside account for taxes and insurance.) If the borrower does not pay the property taxes or homeowner’s insurance, or if the property is in disrepair, this constitutes a violation of the mortgage and the lender can call the loan due. The lender must usually allow the borrower to cure the default to prevent or stop a foreclosure. Though, reverse mortgage lenders are known for foreclosing on elderly homeowners for relatively minor mortgage violations.
After the Loan Becomes Due and Payable
Once the loan becomes due and payable, the borrower owes the lender:
- the amount of money the lender has disbursed to the borrower, plus
- interest and fees accrued during the life of the loan.
To avoid a foreclosure, the borrower must
- correct the default
- pay off the debt
- sell the property for the lesser of the loan balance or 95% of the appraised value (or an heir may satisfy the debt by paying the lesser of the loan balance or 95% of the current appraised value), or
- deed the property to the lender.