My Mom has a reverse mortgage. How does this effect the sell of her home? -

My Mom has a reverse mortgage. How does this effect the sell of her home?


My mother's reverse mortgage is very high ($70,000). My biggest fear is that the mortgage company will foreclose before the home is placed on the market. Presently, she lives alone with three dogs. My stepfather passed two years ago. At times, her dementia is worse than other times; in which I know is possible. My sister is now the POA and she does not have any idea what she is facing. I have already kept the mortgage company from foreclosing, due to the fact, that she did not submit copies of her home owners insurance and property taxes to the mortgage company . My sister feels that she totally understands everything regarding the reverse mortgage and I fear my mother will suffer by losing her home and she will need to be placed in a County home. Could the procceeds be placed into savings?

Kathy D

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Hi Kathy,
I agree with Angel. Reverse mortgages can be very difficult to fully understand. If your sister doesn't understand it she can (as she nearly did) cause some big problems for your mom. It wouldn't hurt to see an attorney to have the contract looked over so that you know your options.

Good luck,
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You will need to read the mortgage documents before you can be sure, however in general you cannot sell the house unless the reverse mortgage is paid off. Also, if the person who took out the reverse mortgage (your mom in this case) passes, the mortgage is due immediately. Does your mom have the funds to pay off the reverse mortgage? This would be the best course.
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Who entered into the reverse mortgage, Mom or Dad? Did Mom already have dementia when she closed on it, and did she understand what she was getting into? I've know some cases in which the reverse mortgage was able to be cancelled because it was found that the person obtaining it has not competent to do so. Just a thought.
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You will need an attorney who can negotiate the amount to be paid back at the sale of the house. All liens are paid off at the closing, because the buyer's mortgage company wants a clean title. See a lawyer NOW, because once she goes to a nursing home, the reverse mortgage company gives you very little time to sell, as little as 30 days.
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kdann - What are you expecting as "proceeds"? Is the 70K the amount of funds mom got from the RM to begin with OR it is the amount that is due right now if the RM were to place a demand notice for noncompliance (aka RM calls in the loan)?
What is the tax assessor value on the home?

In general, the terms on the RM will likely eat up all of the home's equity. The fees, interest etc are fairly high. You have to realize that there likely should be NO expectation that any of the home's value will pass to heirs or will you mom be left with enough funds to pay for her care in a facility for years from the sale. Unless the home had reasonably good value (300K - 400K appraisal with no mortgage) to begin with and has substantially increased in value over the years or decades of the RM, there probably won't be any proceeds left after RM is paid.
For this and many other reasons, a reverse mortgage is generally a poor investment.

RM is debt that HAS TO BE REPAID. If homeowners, their kids or heirs want the house (or worst case scenario - have been unpaid caregivers for their parents and have no other home), then the RM, it’s fees, interest and other expenses within the RM has to be repaid once the homeowner dies or does something to cause RM come due (like not paying taxes, insurance). Under Federal RM rules, lenders allow heirs up to 30 days to let them know in writing what they plan to do and up to 6 mo to arrange financing for 95% of FMV (based on an appraisal) of RM’d house. If not, property can be foreclosed on &/or sold on the open market. There is no gray area, the RM has to be repaid. If it’s an FHA/HUD backed RM & house sells for less than owed, Feds pay the difference to the mortgage holder. Family doesn’t have to make up the difference. But if you want to keep the house, you have to pay the RM and all fees associated with the RM.

What kind of RM did she get…..was it a lump sum RM or a line of credit RM or another type? In a lump sum arrangement, interest charges are added each month, and over time the total owed can easily surpass the original loan amount. Brokers earn higher fees on these lump sums loans too. If it was line of credit RM, see if mom can get by without doing any more withdrawals on it as that will at least lessen the amount to be repaid.

Ba8alou brings up a good point….if mom did not have the cognitive ability to understand what the RM is, then you or whomever is her DPOA can try to get it cancelled. If the RM was with one of the bigger players (Bank of America, Wells Fargo, MetLife), they did a very good job of vetting and going by the rules, so it wouldn't work for a RM issued by them. But there are some RM brokers who have been very predatory and those can be challenged successfully.
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