Selling a home with a reverse mortgage

In 1988, President Reagan changed the game for senior homeowners in America with a revolutionary new law. The Home Equity Conversion Mortgage (HECM) offered seniors access to their home equity without having to move out of their residence - something unheard of before then. Before this law was passed, many faced "house-rich and cash-poor" situations when desperate times called for extra funds... but no longer is that an issue thanks to HECM's. This important legislation brought relief from financial struggles which have only become more difficult during these tougher economic times.

Reverse mortgages have become increasingly popular since their inception, and as of 2016 more than a million are outstanding. If you are selling your home (or possibly a family member's home) with this financial tool in place, the listing process is essentially like any other residential property sale - but there are some unique features involved that require special attention! Understanding these requirements can help ensure for an easy navigated transaction.

What is a Reverse Mortgage?

Are you over the age of 62 and own your residence? You might qualify for a reverse mortgage! This type of loan allows seniors to secure financing based on their home's equity. To be eligible, homeowners must have either paid off all debt associated with their property or possess enough equity in it so that the loan would cover any outstanding payments. Plus, they need to live in the house at time of application.

There are other requirements to secure an FHA HECM loan, including receiving counseling, but the three listed above are necessary to get to the next step in the process. An increasing number of seniors are now meeting these requirements and are using reverse mortgages as a part of their retirement planning.

Provisions and Disadvantages of a Reverse Mortgage

Selling a home with reverse mortgage complications can be challenging - however, there are scenarios that many seniors may encounter. These include relocating to an assisted living facility, family members helping during difficult times, and passing down the inheritance after loss of life. Additionally, financial issues like inability to pay taxes or mortgages could arise for senior citizens and their heirs alike, leaving them vulnerable in foreclosure without proper preparation/action.

When selling a home with a reverse mortgage, it is important to keep key deadlines in mind. Remember that if the senior no longer lives there, then their loan must be paid off promptly - do not miss those dates. If someone other than the living owner is negotiating on behalf of one or more seniors (like an Administrator or Trustee), make sure they have valid documentation confirming this authority before you move forward. This process can feel complex at times; following these steps will help ensure everything runs smoothly for all involved.

Ensuring You Follow the Correct Steps

When a property owner passes away or moves from their home, it's important to understand the implications of this default event on the sale process. The mortgage company is likely to send out what is called a demand letter; meanwhile, all parties involved in selling should realize that those responsible for handling and satisfying the loan are not necessarily its originators. This means they will be impacted by any agreements made with regards to said sales--which must consider when exactly these scenarios occurred (i.e., date of death/moving). From there on out, note that timelines associated with Home Equity Conversion Mortgages (HECM) revolve around said date.

Reverse mortgages are an important loan option for many people, and the legalities associated with them should be taken seriously. Upon certain events such as death or if a borrower moves out of their home lasting more than 12 months, all outstanding reverse mortgage loans must be paid within six months due to defaulting on payment. A 30-day notice will then follow from the servicing company in charge of handling the property’s specific loan details - this is unlike normal defaults where payments have failed to meet requirements. Finally, obtaining approval by way FHA appraisal at least 6 months after receiving notification is essential for streamlining any process connected to your reverse mortgage needs.

Matching your needs to the FHA Timelines

Taking proactive steps when dealing with a reverse mortgage can help you make the most of your options. For instance, speaking to a Realtor early on will enable more tailored planning for events like moving into nursing care (which this event and like events can start the 6-month clock!)- where proceedings from sale could be used as financing in this case if necessary. This step may also include getting comparative valuations before an appraisal is requested; doing so gives valuable insight without initiating the 12-day waiting period and any further appraisals down the line. In default situations such as death or relocation, servicers are obligated by law to order an appraisal within 30 days’ time.

What to do if the deadline is not met?

If time constraints are looming for a real estate transaction, do not panic! There's hope yet -- it may be possible to apply for an extension of up 90 days. Simply follow the necessary steps and provide evidence that you require extra time, and the application could give you some breathing space before closing.

Dealing with defaults

Homeowners must stay on top of property taxes and reverse mortgage payments to avoid default, foreclosure, or other undesirable situations. If you are struggling financially with keeping up the payments current, a Realtor can provide valuable advice for how best to protect your home from any future consequences.

As you cope with the emotional effects of a parent or loved one’s incapacitation or death, it can be difficult to take action on any property they may have left behind. However, if that house was financed using an FHA HECM reverse mortgage, taking responsibility, and getting informed is essential for having peace-of-mind during the process of selling your inherited home. Start by connecting with a Realtor - they will provide guidance and knowledge throughout your journey.

Working with Scott

We have dealt with a plethora of sales involving reverse mortgages over the past 24 years.  If you are in the position where you or a family member has a home with a reverse mortgage that you need to sell, please feel free to reach out to us (even if the home is not in an area we personally service).  We can provide you with some specific guidance and put you in touch with the right Realtor for the job if the house is located outside of our personal service area. 

Selling a home with a reverse mortgage is a bit more complicated than a regular home sale, however if everything is planned well and executed correctly then it should go smoothly.  It is imperative to have a knowledgeable and dependable team working on your behalf during the sale.