My parents passed away earlier this year. They had a reverse mortgage. The reverse mortgage company has lien on the house. My parents left the house to my brother in the will. My parents attorney keeps asking him if he wants to go through probate and have the house put into his name. Can he have the house transferred to his name with a lien on it from the reverse mortgage company? Since he was living with them and still lives in the house what are his legal rights as far as staying in the house? Will he be required to sell the house to pay off the mortgage? If he stays in the house, what fees or penalties can the reverse mortgage company impose on him?
As the probate attorney probably explained, your parents never stopped owning the house, even after they took out the reverse mortgage. It is not the case that the bank assumes ownership when the reverse mortgage is issued or takes ownership after the mortgage holder dies. Your parents could have sold the home, if they had wished, and they were certainly able to leave the home to heirs of their choosing. The key factor is that whether the home is sold by the heir or the heir wishes to reside in the home, the reverse mortgage balance needs to be paid off.
It is standard in a reverse mortgage that the loan comes due when the last mortgage holder dies or when he or she leaves the home. Collecting on the monies that were disbursed to your parents, plus interest, was the basis of the lender making the loan in the first place. How much is owed on the reverse mortgage depends on how much your parents borrowed and how much interest has been charged.
Your brother, the heir, can stay in the home or choose to sell it. He is not liable to pay fees to the reverse mortgage company, but does have to pay the lender. Federal law states that an heir that wants to own the property must pay either the mortgage balance or 95% of the appraised value of the mortgaged property, whichever is less. During the time that it takes for the loan to be paid off, interest charges may continue to accrue, depending on the contract terms. Your brother can borrow money, obtaining his own loan, if he qualifies. He can also choose to sell the home, though you were clear his preference is to remain there.
If there is not enough equity in the home to pay the reverse mortgage lender, your brother is not liable for any shortfall. Unfortunately, real estate values have fallen in many areas, so it has happened that what was borrowed by the reverse mortgage holder ends up being greater than the current market value of the home. Again, if that turns out to be the case that the sale of the house to a third party, at a fair-market price, does not cover the amount owed, the heir is not responsible for the remaining balance owed. The mortgage holder is left with that loss as a cost of doing business.
It is important for your brother to contact the loan servicing company and to discuss the situation. Generally, the heir will have a number of months to finalize a decision on what to do, but the time available to the heir can vary. Find out what timeline the lender expects. Stay in contact with the lender. Let the lender know if the plan is to sell or refinance. It may be necessary to show some proof of the course of action being pursued, such as furnishing the lender with proof that the home is listed or that a loan application is in process, to assure that the lender understands the heir’s plans.
It is generally not the lender’s desire to foreclose on the home, but if the heir is non-communicative and the loan is not being paid back, foreclosure is the only option the lender is left with.
Your brother must decide whether to find a mortgage for the house or sell it. As discussed above, if your brother does nothing eventually the local sheriff will remove him from the property and it will be sold as part of a foreclosure. If your brother wishes to stay, he needs to qualify for a mortgage. He can apply for a mortgage with one of our pre-screened mortgage partners.
I hope this information helps you Find. Learn & Save.