A reverse mortgage is a means for eligible homeowners to tap into the equity in their homes to meet retirement expenses. To qualify, you must be age sixty-two (62) or over, occupy the property as your primary residence, and own the home outright or have sufficient equity in the home. No monthly payments of principal or interest are due on a reverse mortgage. The loan accrues interest and other fees that are not due until a trigger event occurs. However, the borrower is still responsible for property taxes, homeowner insurance, homeowner association fees (if any), and maintenance.
There are three options for loan proceeds to be distributed to the borrower: a lump sum, a monthly payment amount, or a home equity line of credit.
The reverse mortgage loan becomes due when one of the following trigger events occurs:
- The property is sold or title to the property is transferred.
- The borrower no longer uses the home as a principal residence for more than 12 consecutive months. (A borrower can be away from the home, e.g., in a nursing home, for up to 12 months due to physical or mental illness. If the move is permanent the loan becomes due).
- The borrower fails to meet the obligations of the mortgage – pay property taxes, maintain homeowner’s insurance, keep the property in good condition.
If a surviving spouse is not also a borrower, likely because she/he is under age 62, a federal case, cited in Oregon cases, holds that the lender cannot foreclose against a surviving spouse non-borrower at the death of the spouse/borrower. However, the loan is still due as discussed above.
If a home with a reverse mortgage becomes subject to probate, the mortgage is still an encumbrance on the property. Encumbrances stay with the property as it changes ownership, and remain until satisfied. The home does not revert to the bank at the death of the last borrower. At the death of the last borrower the reverse mortgage must be paid off but all remaining equity belongs to the borrower’s heirs or beneficiaries according to the terms of a will or trust. Borrowers who stay in their homes for many years accrue more interest and charges on the reverse mortgage and the amount of remaining equity depends on how much money the borrowers have taken from their mortgage and current market conditions.
The borrower’s heirs/beneficiaries need to determine if they want to keep the home or sell the home. If they want to keep the home they must pay off the loan balance with a new loan through refinancing or with other money available to them. If they choose to sell the home, they need to contact the servicer of the reverse mortgage as soon as possible and inform them of their decision and maintain good communication with that servicer. The heirs/beneficiaries have from about three to twelve months, with lender approval, to sell the property. Fortunately, a reverse mortgage is a non-recourse loan. This means that if the amount due on the loan, including interest and fees, is greater than the amount the property will sell for the heirs/beneficiaries are not liable for any additional amount owed. A sale to a bona fide non-related third party generally does not have any restrictions. However, the heirs/beneficiaries cannot ‘sell’ the home to a family member for less than the loan amount.
An experienced Probate attorney can help you understand your options to handle a home subject to a reverse mortgage. Contact the Probate attorneys with the Law Offices of Nay & Friedenberg in Portland, Oregon at (503) 245-0894 to set an appointment.
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