When the borrower and co-signer of a reverse mortgage pass away, if there is an heir then the heir has to pay the loan balance to get control of the house. In absence of heirs, the lender will sell the house to get repaid.
Reverse mortgages are a great tool for retirees to get some extra cash. But how does reverse mortgage work when you die?
Well, you are about to find out. Because in this post I’ll discuss how does a reverse mortgage work when you die? Moreover, I will also cover reverse mortgage problems for heirs, when you have to pay back a reverse mortgage loan, and many more related topics. So, stick here.
How Does Reverse Mortgage Work When You Die
When you die with a reverse mortgage, your house will be passed to your house or to a co-signer if you have one. After the death of your spouse, the house will be left to the heirs.
In a Reverse mortgage, a borrower does not have to pay the borrowed amount unless they move out of the house or sell the house. Because they basically sell their home equity to a lender.
However, when the borrower dies, the co-signer gets control of the property. If there is no co-signer then it will be passed to the spouse of the borrower. In these situations, neither the co-signer nor the spouse needs to pay back the borrowed amount.
But in case the spouse or co-signer dies then the house will be passed to an heir. But do they need to pay the debt?
Are Heirs Responsible For Reverse Mortgage Debt?
Yes, heirs are responsible for reverse mortgage debt. They either have to pay the lender from their pocket or sell the house to repay.
In case you left your reverse mortgage property to an heir. Your heir has to repay the loan. Your heir can choose from the below options
- Pay the full borrowed amount
- 95% of the home’s appraised value.
As a result, the heir can choose the lesser amount if they want to keep the house.
However, if your heir decides to sell the house then they have to repay the full debt. If the home price is lesser than the borrowed amount then the FHA will cover the additional amount needed. But how long do they have to repay the debt?
How Long Do You Have To Pay Back A Reverse Mortgage?
You will have 30 days after selling the house to repay the reverse mortgage debt. The same goes for heirs because heirs have to pay back the reverse mortgage debt within 30 days of receiving the due notice.
You only need to pay reverse mortgage debt if you sell the house. However, if you leave the house to an heir then your heir must repay the debt.
After your death, the mortgage company sends a due notice to your heirs. Your heirs need to respond within 30 days of receiving the notice. They can either repay the debt within 30 days or negotiate.
If your heirs negotiate then they can extend the repayment time up to one year. But does a reverse mortgage go through probate?
Does A Reverse Mortgage Go Through Probate?
No. a reverse mortgage usually doesn’t go through a probate.
When a reverse mortgage taker dies the heirs need to send the mortgage company the death certificate. Then the lender or the mortgage company sends the loan repayment notice.
In case no heirs respond to the 30 days notice, then the lender will start the foreclosure process. The lender will sell the house for repayment of the debt.
Now let’s look at reverse mortgage problems for heirs.
Reverse Mortgage Problems For Heirs
A reverse mortgage can create so many problems for your heirs. Some of them are
- The heirs are left with a debt instead of an asset. Heirs have to repay the debt to get the property.
- The heirs are given a very short time of 30 days for the repayment if they don’t negotiate.
- The heirs don’t get any money if they decide to sell and the loan amount is greater than the property price.
So that’s what happens at the end of a reverse mortgage
Reverse mortgages can be great for retirees. But reverse mortgage properties are not a profitable thing for the heirs. As heirs are the ones paying the debt.
So, if you are the heir of a reverse mortgage property please consult with a housing counselor to protect your interest.