Inheriting a Home with a Reverse Mortgage Can Be a Mixed Blessing
Inheriting a home that has a reverse mortgage attached to it creates immediate financial and legal obligations. As reverse mortgages become due when the borrower dies, heirs often face strict deadlines and difficult decisions about whether to keep, refinance or sell the property. Given that the process of reaching a resolution can be complex and time sensitive, it is important to know your options and to determine the best one based on your resources and objectives.
Reverse mortgages have been marketed to seniors in recent years as a way to use the equity in their homes to provide an income stream for their retirement years or a large lump-sum payment. A reverse mortgage must be paid off when the last surviving borrower dies.
That means if you have inherited the home, you need to act quickly. Most reverse mortgage companies track death certificates. They often know before family members notify them that the borrower has passed away. They typically send a “due and payable” notice that the mortgage must be paid off within 30 days.
You can request an extension, which typically runs up to six months from the date of death. In the meantime, you will need to get an appraisal to determine the current value of the home. Should you choose to sell it, you will need to pay the lesser of the remaining balance on the mortgage or 95 percent of the home’s appraised value. Any remaining amount should be covered by the mortgage insurance that your loved one paid.
That can be a lot of money to come up with in a relatively short time while you are dealing with everything else in the aftermath of a loved one’s death. Reverse mortgage borrowers frequently purchase a life insurance policy listing the heir to their home as the beneficiary to cover this expense. It is important to find out if your loved one did that.
People who do not have the funds to pay off the mortgage often put the home on the market as soon as possible and use the proceeds to do that. If you are not able to sell the home quickly or for a sufficient price
Families who are unprepared for this complication often face a serious challenge at an already difficult time. Big decisions are required. That is why it is wise to talk with real estate, financial and legal professionals to determine how to proceed and to help you determine how best to handle the inheritance of a home with a reverse mortgage attached.
Jeffrey P. Hall, PLLC, assists Arizonans with all aspects of probate and estate administration from offices in Chandler, Phoenix and Peoria. Call 480-409-5174 or contact me online to schedule a free initial consultation.
