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My mother has reverse mortgage on her home with negative equity in the property.  Because of the service fees and interest that accrues monthly on her reverse mortgage, it's possible that there will be no profit realized from the sale. We just hope that it covers the cost of sale.

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Medicaid will require a copy of the paperwork when the house sells.

Medicaid is used to seeing RM paperwork within Medicaid applications or renewals. Ask the caseworker exactly what is needed to clear any review.

If moms RM was federally qualified RM (like a HECM) then any balance due difference between the RM and the payoff from the proceeds of the sale is covered by the Feds (HUD).

But if it was not Federal, then it's whatever terms were signed off on in the RM paperwork applies. If this is the situation, you clearly need to ask if the RM will issue a 1099-C (cancellation of debt) to your mom for the difference. If so, that is reportable "income" sent by the RM to mom & the IRS by the 1099-C. Irs views all 1099's as income $ with taxes due to be paid to the IRS on the amount. mom will have to get a CPA or other income tax professional to do her taxes (1040 & a Form 982) to deal with this. It is not - imho -ever a DIY project.
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She will get Medicaid, yes. Consider getting an attorney and arranging for a "short sale", where the lender accepts the proceeds of the sale for full relief of the debt. This is actually quite common.
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Just make sure you maintain all the receipts and copies of sales, RM information and original sales information. Medicaid is looking for large profits being hidden or large gifting in the past 5 years. Proof is key! Good luck!
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About the short sale, keep in mind that the lender has to agree to allow a short sale to be done. For traditional mortgages, letting it go to foreclosure is often preferred as it produces better profit for the lender than an SS. It could well be the same for RM lenders. Your or your parent hiring an atty to shepherd all this is going to make the SS more probable to be done.

Also a SS -in my experience - will require a BPO (or maybe 2 BPOs) or an appraisal and then some period of time for negotiation. Alot of buyers wont have the time to go the waiting game of a SS. So much of this depends on the real estate market where you live and what inventory is like.

BPO is Brokers Price Opinion & these run lots less than an appraiser but the lender determines which will be required. The buyers lender might not accept a BPO so a property ends up getting both done & paid for. If your parent - who has the RM - is probably likely to live another 6 mos to a year, an SS can work as they require the property owner to be alive & personally sign. An executor can't sign off on a SS I'm pretty sure. So if she should die before the SS goes through, it's toast and back to sq. 1 to whatever the original terms of the RM was. So if you want to try to approach the RM lender to do a SS, you have got to get an atty on this ASAP.
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Thank you for your answers. They've been very helpful.
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