A reverse mortgage allows older homeowners to tap their home equity so they can use it for expenses and still live in their home. The loan is repaid when the house is sold and so there are no monthly payments.
However, there are some situations when a lender may foreclose on a reverse mortgage, such as if you don’t pay your property taxes or if you don’t live in the home as your primary residence. Learn more about what can trigger a foreclosure and how to minimize the risk.
- Reverse mortgages allow you to access your home equity for a source of cash.
- You can keep living in your home while you have a reverse mortgage.
- If you fail to meet certain requirements, the lender may foreclose on the loan and you could lose your home.
When a Reverse Mortgage Home Might Be Foreclosed On
Here are a few common scenarios where a lender might foreclose on a reverse mortgage.
Failure To Keep Up on Property Charges
When you get a reverse mortgage, your home serves as the collateral for the loan. The lender expects you to continue paying any required costs to maintain ownership of the home and to protect it.
If you start missing property tax payments, fail to pay for insurance, or miss homeowners association (HOA) or condo fee payments, the lender may start foreclosure proceedings.
Letting Your Home Fall Into Disrepair
Your home’s appraised value that the lender considers when it offers you a loan is based on its condition. Lenders want your home to maintain its value because it serves as the collateral for your loan. If you let the home fall into disrepair to the point that its value begins to drop, the lender might foreclose.
No Longer Occupying the Home as a Principal Residence
One of the conditions of a reverse mortgage is that you must occupy the property securing the home as a principal residence. In general, that means spending more than half of each year in the home, although there may be other requirements you must meet.
If you move to another home or spend an extended period of time in a care facility, you may no longer be using the home as your primary residence, which could lead to foreclosure.
How Foreclosure Works With a Reverse Mortgage
Foreclosure on a reverse mortgage involves a few key steps.
Before the lender can foreclose on a loan, a triggering event must occur. For example, if the borrower dies, moves out of the home, or falls behind on property tax payments or home insurance bills, then the lender could start foreclosure proceedings.
Due and Payable Notice
When the lender begins the foreclosure process, it will send a due and payable letter to the borrower or their estate to inform them that they must pay the loan. Borrowers have the right to request an extension of the due date of up to 180 days.
Time To Cure the Loan
State laws will outline how long you have to satisfy the debt or resolve problems to avoid foreclosure. This is called “curing” the loan. For example, in Massachusetts, you have 150 days from the time you receive notice from the lender.
If you received notification from your lender that it wants to foreclose due to unpaid taxes, you may be able to cure the loan by paying your back taxes, preventing proceedings from continuing.
After the period allowed for the borrower to cure the loan, along with any extensions that were allowed, the lender may begin foreclosure. The precise process may vary by state, but it ends in the lender selling the home to recoup their losses.
How To Stop a Reverse Mortgage Foreclosure
When the borrower on a reverse mortgage dies or when the lender forecloses on the home, the lender will notify the borrower that the loan is “due and payable.”
When you receive this notice, you have 30 days to take action by buying the home, selling the home, or turning it over to the lender—or you can request an extension. The lender must automatically grant an extension for up to six months. You can request additional extensions that may last up to a total of 18 months.
You can avoid foreclosure in a few ways.
Sell Your Home
One way to avoid foreclosure is to sell your home. You can use the money from the sale to pay off the loan’s balance, keeping the remainder for yourself. Even if you sell for less than you owe, mortgage insurance should cover the remaining balance.
Deed in Lieu of Foreclosure
If you don’t want to sell the home, which can be a time-consuming process, you can give the home to the lender. You’ll give up your home but avoid foreclosure. Your lender will sell the home to recoup its losses.
Pay Off the Loan
Another way to avoid foreclosure is to pay off the balance of the loan using funds from other sources. If you have money in a savings account, for example, repaying the loan will prevent foreclosure.
If the loan’s balance is higher than 95% of the home’s value, you can pay off the loan by paying 95% of the property’s value, and mortgage insurance will cover the remaining debt.
Get Current on the Issues Causing Foreclosure
If the lender is foreclosing because you’re late on tax payments or the home is in poor repair, you may be able to work with them to get the foreclosure canceled by paying the bills due or fixing up the property.
Finally, refinancing to replace the reverse mortgage with a traditional loan will let you repay the balance and avoid foreclosure.
Frequently Asked Questions (FAQs)
How long does a foreclosure on a reverse mortgage take?
It can take between half a year and two years from the time of a triggering event for a foreclosure and the completion of the process. The timeline varies based on state law and the efforts of the borrower to extend repayment or cure the loan.
What happens when a reverse mortgage is already in foreclosure when the borrower dies?
If a reverse mortgage is in foreclosure when the borrower dies, the family has the right to repay the loan so that they can keep the home. However the inheritor is not obligated to pay the mortgage if the property is in foreclosure.
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