Reverse Mortgage Pitfalls For Heirs

by Pat from Redlands, California, USA

Ask Kate about reverse mortgage pitfalls For heirs: Hi Kate, I am told to obtain a reverse mortgage, my home needs little to no equity. My concern is the debt that my heirs will incur. What is the worst case scenario? Are my heirs personally responsible for paying off the financing?


Kate Answers: Reverse Mortgage Pitfalls For Heirs

Ask Kate at Get-Your-Best-Mortgage-Rate.com
Dear Pat,

Just think about reverse mortgages... Income instead of monthly house payments! Freedom!

Even so, it's not unusual for homeowners and heirs alike to wonder what happens to the debt.

Specifically, what are the reverse mortgage pitfalls for heirs?
"If the value of the real estate drops below what is owed, will heirs eventually be personally liable for the debt?"
Heirs of homes financed with a reverse mortgage are not personally responsible for paying off the loan unless they wish to retain the house.

Three Options for Heirs of Homes with Reverse Mortgage Financing

Reverse Mortgage Pitfalls
  1. Refinance and pay off the existing reverse mortgage.

  2. Retain the house and pay off the debt, in which case, the entire mortgage would need to be paid.

  3. Sell the house to pay off the reverse mortgage. The estate is not responsible for the unpaid balance of the reverse mortgage if the home sells for less than what is owed.

    In other words, heirs do not lose a car or have to dip into their savings to pay for remaining reverse mortgage debt should they choose to sell the home.
Here's more good news. What happens to the equity if the home is financed for less than its value? All remaining equity will be inherited by the estate, that's what!

I hope this is reassuring, Pat. I'm also attaching a summary of other pages on my website with further reverse mortgage information for Seniors and their families.

Reverse Mortgage Help for Senior Citizens

What Is a Reverse Mortgage? Specialty mortgages created to produce income without a monthly payment.

Will heirs become responsible for homes financed with a Reverse Home Mortgage?

Learn who can help homeowners evaluate Reverse Mortgage Income for Seniors before refinancing.

Meet the stable FHA Reverse Mortgage Refinance Program (HECM) and learn the payment options.

Introducing the FHA Reverse Mortgage Purchase Program (HECM) for Senior home buyers.

Seniors and family members Ask Kate for Reverse Mortgage Information.


Best wishes,

Ask Kate

Important: Senior homeowners should consult a financial planner, tax accountant, and/or attorney as applicable to evaluate their circumstances before financing with a reverse mortgage. Even if not a loan requirement, reverse mortgage counseling is highly recommended.

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2 Reverse Mortgages
by: Lee D. from Bluffton, South Carolina

My husband and myself have a reverse mortgage on our home under my husband's name only. Can I purchase a main home also under my name only and get a reverse mortgage? Lee

Hi Lee, Kate here... Reverse mortgages are strictly intended for owner-occupied principal residences.

Vacation homes, secondary residences, and rental properties do not qualify. One exception would be rental properties of 2 to 4 units if the homeowner occupies 1 of the units as a personal residence.

So be prepared to explain to a lender why you'll be using the property for your personal home, if that is the case.

Best wishes, Kate

P.S. Should your husband move into this house with you, his reverse home mortgage will need to be paid off by refinancing, selling the home, or with cash.

Getting Reverse Mortgage for Purchasing Home
by: Jim G from Irvine, CA

Dear Kate,

I am 69 years old and my wife is 59 years old. Is it possible when I purchase to put her name in the deed? If we purchase the home in my name only and I die, can she stay in the house or due to reverse mortgage, will she be removed from the house?

We are living in California and by state law, the home is recognized as community property. Please let me know which reverse mortgage is good for us. We have cash in hand $169.000.00. Please answer my question.

Hi Jim, Kate here...

FHA offers a Reverse Mortgage program for home buyers over the age of 62. Ask your lender if you this would be a good fit for your qualifications.

In general, only borrowers over the age of 62 can take advantage of Reverse Mortgage home loans. In the event of the Senior borrower not occupying the home for 12 consecutive months, moving out permanently, or dying, heirs have the choice of selling the home, paying off the Reverse Mortgage with cash, or refinancing without penalty.

So the fact that your wife is not yet 62 is a concern and should be discussed in detail with your lender. I am not convinced that California community property laws or adding your wife to title will help.

Free counseling is usually offered and often required before getting a Reverse Mortgage. Take advantage of it.

Good luck with your Reverse Mortgage plans, Kate

Sole Heir to Reverse Mortgage Home
by: Shanda

Dear Kate, I am the sole heir of my childhood home that had a reverse mortgage on it as of February of last year. The problem however is that I have been scammed by not only the reverse mortgage lender but by another broker and a lawyer. I have tried to obtain my own loan and due to several problems, I was unable to do so. On October 31st the home was sold at auction.

I am devastated to say the least! I have tried every legal maneuver that I can think of in the amount of $7000.00 trying to keep my home. I am now told that I have to move by February 6th.

Any suggestions? The reverse mortgage lender only gave me from the time of my mother's death in February to the end of June to secure my own loan. This seems like a short time. Shanda


Hi Shanda, Kate here. If you feel you have been scammed, you can report the details to HUD's hotline at 1-800-347-3735. I am not sure of the type of reverse mortgage so here is another resource - You can call your local FBI office for help.

Good luck. I wish you the best in keeping your childhood home. Kate

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You can also ask Kate about your mortgage at Refinancing Advice The Nuts and Bolts.

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