Stopping foreclosure on reverse mortgage

13 Replies

I have a contract on a house that had a reverse mortgage. the mom got the reverse mortgage and she has passed away. The kids have been living in the home and I assume not making any payments. I have not seen the paperwork yet, but she got a foreclosure notice. According to the kids, the mortgage company is saying they have to pay the full balance. I do not know anything about reverse mortgages to know if they have any special provisions like that.

anyone have experience in that? From a short "google" what I have found does match what she is saying.

The owner/mortgagor doesn't make payments on a reverse mortgage, hence the name reverse. The lender advances money either a lump sum and/or monthly payments to the owner. The repayment is due upon the borrowers death, among other events. They have to repay in full, or it gets foreclosed upon. There is no stopping it unless they pay it off, or do a short sale. These loans are all FHA insured, and a short sale requires a price that is 95% of an FHA appraisal, which in this case will be paid for by the lender.

I am a realtor and I listed a short sale on a reverse mortgage with Champion Mortgage. I called the reverse mortgage department and they were very helpful. Wayne Brooks is correct, the bank told me to list it, bring an offer and then they will order an appraisal. The bank will not let it sell for less than 95% of that value. If they have equity, it can be sold to pay off the debt.

A short sale will trash the children's/heir's credit rating. If they can afford a mortgage then what they will need to do is to "refinance" by getting a fresh mortgage for the amount of the reverse mortgage. This will clear the foreclosure and save their credit rating.

Simon

How does the foreclosed/short sale on a reverse mortgage affect an heirs credit?  If the heirs co-signed, then I see how.  But if the deceased was the only person to sign for the RM, then only they would be harmed and since they are deceased, it is a mute point.

Correct, the children are not on the note, not liable, and have no credit impacts from the short sale or from a foreclosure.  This is usually why they have no interest in bothering with the short sale since there is no benefit to them.

Decedent's debts are merely debts of the estate. If they are secured, they are deducted from the proceeds of the collateral upon sale, whether voluntary or forced liquidation (such as foreclosure). 

Credit of heirs or beneficiaries has absolutely nothing to do with an estate or decedent's trust, for that matter. 

Credit relates to character and payment habits. Deceased people no longer have either. Heirs and beneficiaries sometimes have even less.

Originally posted by @Rick Harmon:

Credit relates to character and payment habits. Deceased people no longer have either. Heirs and beneficiaries sometimes have even less.

So Rick, does that mean your credit score goes up, or goes down when you die?  How would one go about improving that score afterwards?

Gee Wayne, I guess that depends on whether you went up or down when you died ; )

I was really trying to make the point about heirs and beneficiaries.

Short sales on RMs have an additional challenge.  If the property is held in the name of the decedent and not in a trust, there is no one to sell the property. Some states have inheritance deeds and some easier ways to transfer real property to heirs.  But it's the rare estate where the heirs will probate it in order to sell property with no equity.  It happens, but not often. 

Originally posted by @Simon Campbell:

A short sale will trash the children's/heir's credit rating. If they can afford a mortgage then what they will need to do is to "refinance" by getting a fresh mortgage for the amount of the reverse mortgage. This will clear the foreclosure and save their credit rating.

Heirs are never responsible for the debts of the decedent and their names and SS# are not on the loan.  It doesn't affect their credit.

Most foreclosing RMs I see cannot be paid off because they are over encumbering. And short sales are possible in only a small percentage of foreclosing RMs.

Originally posted by @Wayne Brooks:

.... Sometimes I just like can't help venturing out into that area somewhere between irrelevant and ridiculous.

 You can find some pretty good stuff out there! It's usually worth the trip

Sorry for the confusion guys - don't know what came over me with that last comment. LOL Honestly, if you can find a buyer that is willing to pay at least the balance on the reverse mortgage and perhaps a little more to provide for the heirs, I would stay away from a short sale. Short sales average between 4 - 6 months. That is a long time for a buyer to wait.

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