Reverse Mortgage Liability
- 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.
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?
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