A reverse mortgage is available to senior citizens, aged 62 or over, and essentially uses equity in a home as the basis for cash payments to the senior, either in one lump sum or in regular ongoing payments. Seniors utilize these payments to supplement Social Security and other income.
Because a reverse mortgage involves payments to, not from, a senior, the reverse mortgage only becomes “due and payable”--and open to foreclosure--when the senior:
- Passes away: If the senior dies, most often heirs sell the property and repay the reverse mortgage lender. However, if the heir does not sell the home, or considers it worth less than the amount of the reverse mortgage, the lender can move to foreclose in some instances.
- Sells their home: If the senior sells their home, foreclosure is rarely required. Profits from the sale are used to pay off the reverse mortgage and other liens and taxes. Additional profits are put into the senior’s estate. However, if the borrower tries to hide the profits in any way, and the lender finds out, they will call the loan “due,” and can move to foreclose on the reverse mortgage.
- Moves elsewhere: If the borrower moves to a nursing home, most lenders offer the borrower one year to return to their home. If they do not return in that period, they will need to begin repaying the reverse mortgage. If they do not, again, they can face foreclosure. However, if the borrower moves out of the home, and even rents it out, the lender will require repayment immediately, or can move to foreclose.
- Cannot or will not pay homeowners insurance or property taxes on the residence to which the reverse mortgage is tied: If the borrower cannot pay taxes and insurance on the property, the lender may advance the funds to the lender for those bills initially. If repayment cannot be made, foreclosure may result.
- Allows the residence to fall into serious disrepair, and does not make necessary repairs: Lenders need properties to be in good condition to get their money back. If repairs are needed and not made, they reserve the right to foreclose on a reverse mortgage.
In each of these instances, the reverse mortgage may become due and payable. In the rare instances when the senior cannot or will not make payments back, or address the lenders concerns, the reverse mortgage may be subject to foreclosure.
