Retirement can be an expensive phase of life, and for seniors with a reverse mortgage, falling behind on property taxes can put their homes at risk. If you’re facing a reverse mortgage foreclosure or want to prepare for potential future scenarios, read on to learn about the different types of reverse mortgages and your options to avoid foreclosure.
Understanding Reverse Mortgage Foreclosure
A reverse mortgage is a loan based on the equity in your primary residence, commonly used by retired individuals or couples. These loans are often taken out through Home Equity Conversion Mortgages (HECM), which are insured by the Federal Housing Administration (FHA). However, some private lenders also offer reverse mortgages.
With a reverse mortgage, you can receive funds based on the property’s value, and in most cases, you’re not required to make monthly payments on the loan. However, interest continues to accrue on the loan amount. The loan becomes due in full when one of several qualifying events occurs, such as the borrower’s death or the property being sold or transferred.
Types of Reverse Mortgages
There are three main types of reverse mortgages:
Single-purpose reverse mortgages are offered by certain states, governmental agencies, and nonprofit organizations. These loans are typically more accessible to borrowers with low or medium incomes but come with restrictions on how the funds can be used.
Home Equity Conversion Mortgages (HECM) are insured by the FHA and offer protections to borrowers, such as never owing more than the home’s value and the option to receive funds in various ways.
Proprietary reverse mortgages have no loan limits and may have higher interest rates than HECM loans. They can be useful for homeowners with high-value homes who expect their property to appraise for more than the HECM limit.
Causes of Reverse Mortgage Foreclosure
Several events can trigger a reverse mortgage foreclosure, including:
- The borrower’s death, where the surviving spouse or heirs are not on the loan.
- The property being sold or the title transferred.
- The borrower no longer using the home as their primary residence.
- The borrower failing to live in the home for more than 12 consecutive months.
- The borrower missing payments for property taxes or homeowners insurance.
- The home not being maintained
Reverse Mortgage Foreclosure Timeline
If a triggering event occurs, the reverse mortgage foreclosure process begins. For HECM loans, the timeline typically involves:
Within 30 days of the event, the loan service provider sends a “Due and Payable” letter, giving the surviving spouse or heirs six months to sell the home or pay off the loan. If the loan is not paid within six months, the loan service provider sends a preforeclosure notice.
The surviving spouse or heirs can request two three-month extensions to delay foreclosure, with HUD approval.
If the loan is still not paid after the extensions, the loan service provider can foreclose on the home.
How to Avoid Reverse Mortgage Foreclosure
To avoid reverse mortgage foreclosure, consider these options:
- Refinance to a traditional mortgage if the lender will allow.
- Consult with a HUD counselor for guidance on avoiding foreclosure.
- Sell the home to pay off the loan.
- Pay off the debt.
Reverse mortgages can be a valuable financial tool for seniors, but it’s essential to understand the risks and options if facing foreclosure. Would you like to understand your options in greater detail? Trusted Home Offer has been helping people just like you with these situations for decades. We are a family run business and we are here to help to bring clarity and direction. If we aren’t your best resource, we will point you in a better direction. We don’t charge any upfront fees. Reach out to Trusted Home Offer at 208-919-9579 or by email at support@TrustedHomeOffer.com Find us online at TrustedHomeOffer.com
