Does every HECM (reverse mortgage) end up in foreclosure?

Question

I went down the rabbit hole on HECM (home equity conversion mortgages). In my opinion the reverse mortgage industry is insane and borderline predatory. I'm trying to understand the timeline for these types of properties. Unfortunately my neighbor passed away last year, had a reverse mortgage, and left the property to her heirs. It's come to my knowledge the lien was $183k... but the property is distressed, vacant, attracting squatters, and has a market value of $90-110K in it's current condition. It could be a great buy off market but I don't know if it's possible.

Does anyone have experience perusing this type of deal? I've called the previous lender and emailed HUD but haven't got any information. People are saying these properties can sit for years so with no equity I'm assuming the heirs signed it over to the bank.

Does anyone have experience perusing this type of deal? I've called the previous lender and emailed HUD but haven't got any information. People are saying these properties can sit for years so with no equity I'm assuming the heirs signed it over to the bank.

Kyle Coniker · Answer

Hi @Jaron Walling ,

I am sorry to hear that your neighbor passed away. Your neighbor's heirs have a couple of choices even though the lien is more than what the property is worth. The heirs can keep or sell the property for 95% of the appraised value to pay off the debt or they can sign the property over to the bank. The FHA mortgage insurance that HECMs come with will kick in and pay the remaining difference on what is owed. The timeline really depends on who is servicing the loan. In this case, I bet this is being serviced by HUD's servicing company called NOVAD. I have a client right now that is going threw this. The heirs should call NOVAD and have NOVAD order an appraisal. Phone wait times have been a couple of hours recently. Once they have the appraisal they can determine a sales price and payoff amount. Appraisals have been taking a while as well. If you have time and want to put in the effort you could get a nice deal.

Jaron Walling · Answer

@Kyle Coniker Thank you for the response! Yes it's with NOVAD. Sounds like as an investor buyer I can't do much to help the family or buy the property until all those steps are completed. I will follow up with this property and see what happens. It doesn't hurt to try.