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Reverse Mortgage Liability

My parent died with a reverse mortgage. Now the bank is suing me. Why?

My mother died having a reverse mortgage. The house is worth much less than the amount owed. She left no assets other than her Florida home. I have communicated several times with the mortgage company by phone and in writing, stating that I did not want the home. They informed me that they would foreclose on the home. I just received a letter from the mortgage company's attorneys stating that they have filed a motion for summary judgment and motion for attorneys fees and memorandum against me. I was told that I would not be responsible for my mother's reverse mortgage. Can they do this? What recourse do I have?

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Updated: Sep 23, 2014

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Highlights

  • A homeowner with a reverse mortgage still owns the property.
  • A mortgage, whether it is reverse or conventional, is an encumbrance.
  • A bank with a reverse mortgage on a property does not possess the title.

Your question is difficult to answer because I need to make a big assumption about a key fact in your situation. Allow me to discuss some important background concepts before tackling your main question.

Mortgage and Deceased Homeowner

Generally speaking, how the property is titled controls who takes the property upon the homeowner’s death. If the title of the real property is in the homeowner’s name only, then the homeowner’s will controls who gets the property. If the homeowner has no will, the laws of the homeowner’s state control who gets a share of the property.

A will or trust controls how a person’s estate is settled. (An estate is all of the assets owned by the decedent.) If there is no will or trust, the court will follow its state statutes and common law for settling the estate. These vary, but generally speaking a spouse will receive half and surviving children split the other half. However, each state has its own rules of intestate succession, and an attorney can advise you on the rights of the homeowner’s heirs.

The executor (if there is a will) or administrator (if there is no will) is responsible for carrying out the tasks in the will, and managing the financial affairs of the estate during this process. It is the responsibility of the executor or administrator to pay the mortgage during the probate process and distributing the assets of the estate. Ultimately, the executor and administrator work for the court and are employed until all claims are resolved and all property is distributed.

Reverse Mortgage and Deceased Homeowner

A reverse mortgage is a unique mortgage because there are no payments required from the borrower. Instead, the homeowner receives cash from the lender and in turn, the lender receives a portion of the homeowner’s equity. A reverse mortgage loan is designed to give older homeowners the ability to receive tax-free income without having to make payments, sell their home, or affect their hold on their title. For older homeowners (a person must be 62 years or older to qualify) a reverse mortgage can be the right way to receive either extra income or security in retirement.

The homeowner with a reverse mortgage still owns the property and can sell or gift it to someone else. The property is subject to any encumbrances, whether they be reverse or conventional mortgages or liens. A bank or credit union with a reverse mortgage on a property does not possess the title to the property, nor is the title in the bank or credit union’s name.

The reverse mortgage is repaid when the home cease to be the primary residence for a certain period of time. This can be a result of the homeowner selling the home, moving out, or dying. In any of these cases, the lender receives the proceeds of the sale of the home to pay off the balance of the reverse mortgage loan. If the proceeds of the sale exceed the outstanding loan balance, the difference is paid to the borrower or to his or her estate.

Heirs to real property take the property subject to its encumbrances. A mortgage, whether it is reverse or conventional, is an encumbrance.

Your Questions

Here is my big assumption: Either your name was on the title in some form of future interest, or your parent's estate was probated and you inherited the property in question. I make the assumption you inherited the title to you parent’s property because you mentioned that the mortgage company filed a lawsuit against you regarding the foreclosure of the property. If you have siblings, it is possible they inherited a share in the property and also received a summons. As owner of the property, the bank is asking you to pay for the costs associated with the foreclosure.

If you inherited the property, you had the option to avoid the foreclosure by selling the property. If the balance of the reverse mortgage was greater than the market value of the property, the bank would have had to absorb the loss as a cost and risk of doing business. You would have inherited the surplus if, as mentioned above, the sale price was greater than the balance of loan.

The question is now what can you do about this situation. First, consult with an attorney in your state who has experience in real estate law or civil litigation. He or she will review the facts in your case, as opposed to my guesswork, and give you precise advice based on the facts and your state’s laws. Second, ask your attorney to open a negotiation to resolve the situation before the court date. Court time is expensive and the outcome is not in your control, which is in contrast to out-of-court negotiations.

If you cannot afford an attorney, call your county bar association and ask for the contact information for the organization that assists people in your area with low or no income who have civil litigation questions. Make an appointment with that organization and bring all of your documents relating to the lawsuit and the property to that meeting. An attorney or paralegal will advise you of your rights and liabilities.

I hope this information helps you Find. Learn & Save.

Best,

Bill

Bills.com

4 Comments

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  • RH
    Feb, 2012
    robert
    My sister died intestate and had reverse mortgage. I received summons from counsel for lender. Hired attorney who requested deed in lieu. 3 months have passed and they refuse to forward document for signature. Opposing counsel are "debt collectors" and are trying other means to obtain monies from reverse mortgage. Since they cannot come after me for funds, am at a loss on how to proceed. Am ready to discharge present counsel for non-communication with me and appeal to bar assoc. for possible resolution.
    0 Votes

    • BA
      Feb, 2012
      Bill
      The following questions are not meant to be uncaring, but are meant to help me understand your situation better. What would be, from your perspective, a just and fair result of your case against the lender? Is your position that your sister was mislead or otherwise dealt with unfairly when she signed the reverse mortgage contract? Is the contract itself unfair or unreasonable? Was the state's foreclosure process not followed properly? Answer to these questions may help us respond more meaningfully to your comment.
      0 Votes

    • RH
      Feb, 2012
      robert
      thank you. more details: Due to intestate succession (I am sole survivor), I was sued for disposition of property. hired attorney and he wrote to them stating that I had no interest in property and would relinguish all rights and claims if deed in lieu were prepared for my signature. No reply rec'd to date. Complication is that my nieces who resided with her at time of death stated to me they wanted to obtain mortgage and remain in home. Also, an amount of $295,000 was obtained from bank thru reverse mortgage (far exceeding equity of home). Since only 18 months elapsed between receiving monies and her death, location of funds is not known. I fully understand their right and i would want them to pursue the money trail if any fraud is present. This is a seperate matter and has nothing to do with me. I an involved only due to intestate succession on property settlement, and have fully cooperated with them to that end. I am ready to discharge counsel for inaction and non-communication with me to include disregard of letters I have written to him. I will have all documents returned to me so I can at least read replies from their counsel and see their position on matter. Since all they can obtain in further litigation is what I have been trying to give them, I will contact them personally and again state my willingness to return property to them for sale and recapture funds invested thru reverse mortgage. If further counsel is needed I will hire real estate type.(Forgot to mention my nieces occupied the home for more than a year when eviction took place).
      0 Votes

    • BA
      Feb, 2012
      Bill
      I agree with your plan of action. It is disappointing the lawyer is committing what appears to be malpractice. You may have a cause of action against him or her.
      0 Votes