Essential Guide for Heirs: Navigating Reverse Mortgages in Today's Market

Reverse mortgages enable seniors to convert home equity into cash without selling their property. However, repayment obligations eventually transfer to heirs, who must understand their rights and responsibilities based on their relationship to the borrower.

Typically, reverse mortgages become due when the borrower dies, permanently moves out, or sells the home. Spouses and other heirs have distinct options, including retaining ownership, selling the property, or returning it to the lender.

Key Insights

• Reverse mortgages must be settled upon the borrower's death, long-term move, or home sale.
• Co-borrowing spouses retain the right to live in the home and continue loan benefits.
• Spousal rights vary: co-borrowers, eligible non-borrowers, and ineligible non-borrowers have different entitlements.
• Non-spousal heirs typically must sell the home, buy it outright, or relinquish it.

Understanding Reverse Mortgages

The predominant reverse mortgage type is the Home Equity Conversion Mortgage (HECM), insured by the FHA and available to homeowners aged 62 and above.

Upon the borrower's death or extended absence, heirs have a limited timeframe to settle the loan, with rules differing for spouses and other heirs.

Spouse-Specific Guidelines

Spouses fall into three categories under current regulations (post-August 2014):

1. Co-Borrowing Spouses

Must be 62 or older at loan origination and listed on loan documents; they can live in the home and receive payments after the borrower's death.

2. Eligible Non-Borrowing Spouses

Spouses under 62 at loan initiation who meet residency requirements can remain in the home without receiving loan disbursements until they move out.

Same-Sex Marriage Considerations

Same-sex couples previously unable to marry may qualify as eligible non-borrowing spouses if legally married subsequently.

3. Ineligible Non-Borrowing Spouses

Spouses who do not meet eligibility must repay the reverse mortgage to stay in the home.

Options for Non-Spousal Heirs

Non-spouse heirs who are co-borrowers have rights similar to co-borrowing spouses. Otherwise, heirs can:

• Sell the property to repay the loan and keep any remaining equity.
• Pay off the mortgage independently to retain the home.
• Return the home to the lender via a deed in lieu of foreclosure.

Heirs typically have 30 days to respond to a Due and Payable Notice but may request up to a year extension to resolve the loan.

Importantly, FHA insurance limits heirs' liability to the lesser of the loan balance or 95% of the home's appraised value, protecting against owing more than the property's worth.

Seeking Assistance

Reverse mortgage laws can be complex. Borrowers and heirs should consult lenders, legal professionals, or HUD-approved housing counselors for guidance. HUD offers free or low-cost counseling; visit their website or call (800) 569-4287.

Types of Reverse Mortgages

• HECMs: FHA-insured and most common.
• Proprietary Reverse Mortgages: Private loans with higher limits, not government insured.
• Single-Purpose Reverse Mortgages: Issued by local agencies for specific needs like repairs or taxes.

Living in a Home with a Reverse Mortgage Without Ownership

Non-borrowers must vacate the home after the borrower's death or extended absence unless they qualify as eligible spouses or heirs who pay off the loan.

Can Borrowers Repay Their Reverse Mortgage Early?

Yes, borrowers may repay by selling the home or if required due to property condition or failure to maintain insurance and taxes.

Final Thoughts

Reverse mortgages require repayment after the borrower's death or relocation. Heirs should explore options early, including selling or purchasing the home. Open communication between borrowers and heirs can ease the transition and financial responsibilities.

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