REVERSE MORTGAGE HOMEOWNER DIES: NOW WHAT HAPPENS?
Reverse Mortgage Loan App
Reverse Mortgage Loan App
FROM : https://reverse.mortgage/ ask the servicer
By Ryan LaRose
In normal, or traditional “forward” mortgages, provisions in the loan documents for
the death of the borrower are not often utilized. Given that the
reverse mortgage product is designed exclusively for older adults,
it’s imperative that reverse mortgage industry professionals are
familiar with the standard processes of what occurs once the last
surviving borrower passes away. This is an inevitable topic when
discussing the unique servicing requirements of these loans and
the death of a reverse mortgage borrower is an ultra-sensitive
issue that servicers are required to face on a daily basis.
Whenever death enters the reverse mortgage servicing process,
the servicer must work very closely, and sensitively, with the estate
or heirs. It requires the servicer to exhibit a delicate balance
between empathy for the heirs of the lost loved one, and the
requirements of the servicer under the HUD guidelines. This month
I received a question on this topic from a reader of The Reverse
and will answer it in two parts below:
Q-How do servicers know when a borrower has passed away?
A-In order to keep the data in their servicing platforms fresh and upto-date,
as well as to remain in compliance with HUD guidelines,
servicers typically subscribe to a monthly “death audit” service.
These third-party companies compare borrower information to a
variety of database sources, ultimately producing a final report of
any new matches to the servicer. Death information is generally
obtained from the social security death index, but service providers
also utilize a variety of proprietary sources for this information as
well. Servicers are typically made aware of a borrower’s death
through the results of this monthly audit, but occasionally an heir
or family member will contact the servicer directly to pass along
the information. In either case, once the servicer has confirmed
that the last surviving borrower has died, a series of HUD-required
actions are set into motion.
Q-What happens to a reverse mortgage once the last surviving
borrower has died?
A-Once the servicer has confirmed the death of the borrower, a
Condolence Letter is sent to all known heirs. (To see the required
language that must be present in the letter, please refer to the
HUD Handbook 4330.1, 13.33.) This letter provides invaluable
information to the heirs and/or estate about the options available
to them under the HECM program for satisfying the loan balance,
and these options are: • Pay the loan balance in full;
• Complete a short sale of the property (in which the estate is
able to sell the property to an unrelated third party for 95%
of a current HUD appraised value, less any customary closing
costs and realtor commissions); • Walk away from the home (which would result in a foreclosure
action by the servicer); or • Complete a deed in lieu of foreclosure (where the estate signs
documents titling the property back to the investor).
The reverse mortgage is considered to be a “non-recourse” loan.
This means that the only collateral on the loan is the property
itself. If the estate elects to complete a deed in lieu, short sale, or
have the servicer initiate foreclosure, there is no negative financial
impact on the borrower’s heirs or the estate.
Servicers typically receive this question from the heirs upon receipt
of the Condolence Letter: “How much time does the estate have to
pay the loan off after the borrower passes away?” The ambiguous
answer is… it depends! The variable factor is the extent and
frequency of the communication efforts of the estate. As long
as the estate remains in regular communication and they have
provided the documentation required by the servicer (a letter
detailing their intentions with the property, copy of the real estate
listing, etc.), HUD guidelines allow them time extensions for up to
one year from the date of death.
The actual HUD language regarding the time extensions available
to the estate can be found in the HUD Handbook 4330.1, 13.34:
If the mortgagor or the mortgagor’s estate fails to repay the
outstanding balance on a due and payable mortgage or if the
mortgagor fails to deed the property to the mortgagee within
the prescribed time, the mortgagee must begin foreclosure
proceedings… …If the estate is making a reasonable effort to sell
the property, extensions should be granted in 3-month intervals
with the entire period not to exceed 12 months.
It should be noted that if the estate is uncooperative or
unresponsive to requests for information, the servicer does
not have to wait the entire 12 months to begin foreclosure
proceedings. In certain cases, the estate may be upside-down
on the property and servicers are asked by the heirs to initiate
immediate foreclosure, as there is no equity remaining for them
to sell the home. If the estate is unable to pay the loan off, or is
unwilling or unable to complete a deed in lieu within the 12 month
period, then the servicer is required to initiate foreclosure in an
effort to gain title of the property for the investor.
I recall one particular situation where a borrower’s daughter was
thrown into complete and devastating grief over the sudden loss of
her mother. She was emotionally paralyzed for months; although
almost daily she was faced with the daunting task of dealing with
the loss of her mother, and undertaking the necessary actions
to finalize her estate. We worked closely with the daughter,
counseling her through the entire process until she was able to
sell the home and pay off the reverse mortgage balance. Reverse
mortgage servicers spend a great deal of important and extended
time with these grieving family members as they coach them
through this process.
I look forward to receiving your servicing inquiries at: [email protected]. Please remember: there is no such thing as
a stupid question! No doubt, the question you ask will have
been in the minds of other readers as well. If you wish to remain
anonymous for my response, just let me know.