In sum, if the spouse of the co-borrower or heir inherits the house that has a reverse mortgage, he will never owe more than the value of the house, nor be forced to sell his assets in order to repay the debt. If an heir pays the loan back or sells the property, the heir would never owe more than 95% of appraised value. If the house sells for more than the reverse mortgage was worth, the borrowers heirs will keep any remaining equity.
If a heir takes no action during the time allotted, the bank will foreclose on the house in order to recover on the reverse mortgage. If the home does not sell for enough to recoup the balance, the borrowers heirs are not liable to repay the remainder of the balance, with the bank taking the loss. When both owner and borrower die, they inherit the home, but the heirs are also responsible for paying off the loan. If the money still remains outstanding on the loan, the borrower may leave his or her home to his or her heirs.
Your heirs cannot sell it, nor take out another loan, if the heir does not own title to the house. If your heirs sell a property and the proceeds from selling the house are greater than the balance on the loan, your heirs may retain any surplus funds. The homeowners estate can elect to hold on to the house while paying the outstanding balance.
With the HECM, heirs can sell a home for either less than the mortgage balance or 95% of the homes assessed value. If a family member or other heirs chooses to keep the property, they can opt to repay the reverse mortgage, usually through a refinance. If the heirs wish to keep the home, your heirs have to repay either the full amount of the loan, or 95% of the assessed value, whichever is lower.
Your heirs will have the choice to determine if they want to pay off the reverse mortgage loan balance and keep the home, sell the house and retain your equity, or just walk away and allow the lender to liquidate the house.
There are no restrictions to selling to family members or anyone else, except if the reverse mortgage loan balance is greater than the propertys value, and heirs wish for the lender to forgive the over-valued part of the loan and keep the property within the family. If a spouse has died, but a surviving spouse is listed as a borrower in a reverse mortgage, they may continue living in the house, and there is no modification in terms of the loan. Ideally, both spouses would own the property and are the borrowers of the reverse mortgage, so when just one spouse dies, the other spouse continues to have access to reverse mortgage proceeds and may continue living in the home until their death.
If your heirs do not want to maintain the home, they may decide to move out of it, and the lender cannot seek repayment of obligations — their reverse mortgage equity — from either heirs or the estate. If the heirs do not take action, and they fail to transfer ownership of the property to the lender, the home is likely headed for foreclosure.
After a borrower dies, and the property is not the primary residence of at least one of the surviving borrowers, heirs may resolve the debt through any one of four ways. If a heir cannot pay off the loan individually, selling is the easiest way to meet the terms of the loan.
Even if a sale does not pay the full amount of the mortgage, the Federal Housing Administration (FHA) does not permit lenders to pursue borrowers or their heirs for any differences. In that situation, a homeowners estate will only be liable to pay 95% of the homes value, or the principal balance, whichever is lower; lenders would absorb the loss and seek repayment through their Federal Housing Administration (FHA) insurance.
The full balance of the loan becomes due and payable upon the borrower dying, moving out for good, or selling the home. Once a borrower is no longer living in a home, whether because of death or move, the loan becomes payable on the full amount accrued. The heirs have 30 days to pay off the loan once they receive notice of dueness and payment from the lender, though it may extend up to one year.
The loan must also be paid off if the borrower is still alive but has moved out of the house. However, when the final borrower dies, the adult children and other non-spouse heirs must repay the loan. Because homeowners get payments back from their lenders, homeowners equity in their properties declines over time, because loan balances grow larger.
Once it is time for the last lender to move out of the house, and it is for your heirs to decide whether to keep the house, sell the house, or allow the lender to repossess the house, heirs should be able to make this decision quickly, to avoid having too much interest and fees added on, and not to risk foreclosure (assuming that they are not planning on turning over the house to the lender).