Inheriting a loved one’s home is nearly always a mixed blessing. These days, however, more heirs are increasingly facing the challenges that come with inheriting a home with a reverse mortgage.
These mortgages have been increasingly advertised to seniors as a way to use the equity in their homes as income to make their retirement years more comfortable. The mortgage is then “due and payable” when they die.
Be aware of the deadlines
Once the borrower (or the last surviving borrower) dies, the problem becomes one for those who inherited the home – and there’s no time to waste. Even if no one notifies the lender of the homeowner’s death, most lenders track death certificates, so they know when a borrower has passed away. They typically send a notice to the heir or executor to notify them that the mortgage must be paid off within 30 days.
The best first step is to ask for an extension. Typically, extensions of up to six months from the date of death are granted. You’ll want to find out what your deadline for getting the property appraised is. They’ll want a current appraised value. If you’ve inherited the home, you’ll need to pay either the balance of the mortgage or 95% of its appraised value – whichever is less.
Either way, that can amount to a lot of money to come up with. It’s recommended that people who get a reverse mortgage also get a life insurance policy with the heir to the home as beneficiary so they can use those funds to pay it off. Unfortunately, not everyone does that.
What are your options for dealing with the mortgage (and the home)?
The most common options with these homes are:
- Pay off the mortgage with your own assets or the proceeds of a life insurance policy.
- Sell it as soon as possible and pay off the mortgage from the proceeds of the sale.
- If you want to keep the home, get a traditional mortgage and pay off the reverse mortgage.
- Agree to sign a deed-in-lieu of foreclosure to hand the home over to the lender.
This is a lot to deal with. That’s why it’s wise for families to talk if a parent or other older family member decides to get a reverse mortgage and to be sure it’s dealt with in their estate plan. If it’s too late for that, it’s crucial to have experienced legal guidance as you determine what to do.