What Is a Foreclosure?
A foreclosure is a legal process by which the owner forfeits all rights to the property. If the owner can't pay off the outstanding debt, or sell the property via short sale, the property then goes to a foreclosure auction. If the property doesn't sell there, the lending institution takes possession of it.
You can learn more about foreclosure and your options if you’re facing foreclosure by visiting our foreclosure and loan modification page here.
What Is a Reverse Mortgage?
A reverse mortgage is a type of home loan for older homeowners that requires no monthly mortgage payments. Borrowers are still responsible for property taxes and homeowner's insurance. Reverse mortgages allow elders to access the home equity they have built up in their homes now, and defer payment of the loan until they die, sell, or move out of the home.
Can a Reverse Mortgage Be Foreclosed On?
Yes, because a reverse mortgage involves payments to, not from, a senior, the reverse mortgage can become “due and payable”--and subject to foreclosure--when the senior:
- Passes away: If the senior dies, the heirs can pay off the debt, deed the property to the lender, or sell the property for at least 95% of the appraised value (or pay 95% of the current appraised value to the lender). Otherwise the lender will foreclose.
- Sells their home: If the senior sells their home, foreclosure is rarely required. Profits from the sale are used to pay off the reverse mortgage and other liens and taxes. Additional profits are put into the senior’s estate.
- Moves elsewhere: If the borrower moves to a nursing home, most lenders offer the borrower one year to return to the home. If the borrower does not return in that period, he or she will need to repay the reverse mortgage. If not, the lender can foreclose. However, if the borrower simply moves out of the home, and even rents it out, the lender will require repayment immediately, or can move to foreclose.
- Cannot or will not pay homeowners insurance or property taxes on the residence to which the reverse mortgage is tied: If the borrower cannot pay taxes and insurance on the property, the lender may advance the funds to the lender for those bills initially. If repayment cannot be made, foreclosure may result.
- Allows the residence to fall into serious disrepair, and does not make necessary repairs: Lenders need properties to be in good condition to get their money back. If repairs are needed and not made, they reserve the right to foreclose on a reverse mortgage.
In each of these instances, the reverse mortgage becomes due and payable and the home is subject to foreclosure.
How Can We Help?
If you have a reverse mortgage and are facing foreclosure (or fear you soon may), please do not hesitate to contact us for your free consultation. It is important to address serious issues like these as soon as possible so that you have plenty of time to act. We look forward to assisting you soon.