Reverse Mortgage Foreclosure: What You Should Know
Even though a reverse mortgage is a home loan with no monthly payments, foreclosure is still possible. For example, if the home is sold or the homeowner dies, a reverse mortgage foreclosure could occur if the loan balance isn’t repaid.
What is a reverse mortgage foreclosure?
With a reverse mortgage, homeowners 62 or older can borrow against their homes and don’t have to make any repayments until a “triggering event,” also called a maturity event.
Triggering events include the sale of the home or the death of the homeowner listed on the loan (see list of triggers below). Once this happens, the reverse mortgage will need to be paid off within one to six months (see foreclosure timeline below), or else risk losing ownership of the home through foreclosure.
If the borrower dies or another trigger happens, make sure to let the loan servicer know right away, so you have plenty of time to work with the lender and avoid losing the home.
The triggers or maturity events that can set the foreclosure process in motion can include when …
- The home is sold or transferred
- All the homeowners listed on the reverse mortgage have died
- The home is no longer the borrower’s primary residence, or they haven’t lived there for 12 straight months or more
- The borrower hasn’t maintained the home to lender requirements
- The borrower has failed to pay property taxes or homeowners insurance
How does a reverse mortgage foreclosure work?
The most common kind of reverse mortgage is a home equity conversion mortgage (HECM), which is backed by the Department of Housing and Urban Development (HUD). An HECM will follow the HUD reverse mortgage foreclosure guidelines described below.
Other types of reverse mortgages from private lenders may have different triggers and protections, so you’ll need to check your loan terms carefully to see how foreclosure works in that case.
Here’s how reverse mortgage foreclosure usually works:
- A triggering event occurs. Reverse mortgage lenders can start the foreclosure process once any of the maturity events happen. The most common is when the loan servicer is notified that the homeowners on the loan have died.
- The lender gives notice to the owners or heirs. Within 30 days of the maturity event, the service will send a “Due and Payable” letter outlining what you need to do.
- Owners/heirs respond to the lender. The heirs (including a surviving spouse who is not listed on the reverse mortgage) will have up to 30 days to respond to the letter.
- Owners/heirs repay the mortgage. Usually, heirs have six months to pay off the balance — including by selling the home — or else turn the home over to the lender.
- The lender can give an extension if necessary. Extensions may be requested with HECMs. With approval, you may have up to six extra months to repay the debt.
- The lender proceeds with foreclosure. If the loan can’t be settled, the lender will move forward with home foreclosure. Contact a foreclosure attorney to understand your rights, since the foreclosure process can vary by state.
Reverse mortgage foreclosure timeline
| Time after triggering event | What happens |
|---|---|
| Triggering event | Your loan servicer is notified that a maturity or trigger event has occurred. |
| Within 30 days | Your loan service sends a “Due and Payable” letter 30 days or less after maturity. Note: You will need to respond within 30 days of receiving this letter. |
| Within 6 months | You usually have six months to satisfy the debt, although some lenders may only give you up to 30 days unless you ask for an extension. |
| After 6 months | You can ask for a 90-day extension if can’t meet the six-month timeline |
| After 9 months | You may usually request a second 90-day extension if needed |
| After 12 months | Foreclosure proceedings begin as set down by state laws and according to your private lender agreement |
Tips on how to avoid reverse mortgage foreclosure
- Communicate with the loan servicer as much as possible. Staying in regular contact with the loan servicer can help keep you out of foreclosure. You may be able to work out a settlement plan or request extensions.
- Ask about a repayment plan. You might qualify for a repayment plan, though it depends on your lender.
- Get help from an HUD counselor. An HUD counselor is trained to provide information about foreclosure prevention and may be able to give you helpful tips.
- Refinance to a regular mortgage. You may be able to refinance to a regular home loan if you meet minimum mortgage requirements.
- Sell your home. If you can sell the home for 95% of its appraised value, you generally don’t need to pay any balance you owe above that amount.
- Repay your reverse mortgage with cash. If you have the financial resources to make this happen, you can avoid foreclosure by keeping the home.
- Offer a deed-in-lieu of foreclosure. You can give back the deed to the lender instead of going through foreclosure.
If your spouse took out a reverse mortgage by themselves — maybe you didn’t qualify because you weren’t 62 years old at the time of the loan — you may still be able to stay in the home.
To stay, you’ll need to meet these five conditions:
- You pay homeowners insurance and property taxes on time
- You maintain the home under your reverse mortgage lender terms
- You were legally married under non-borrowing spouse guidelines
- You are legally able to take over the home’s title within 90 days of your spouse’s death
- You’ve lived in the home as your primary residence while the reverse mortgage was in place
What happens after a reverse mortgage foreclosure?
A reverse mortgage foreclosure is similar to any other foreclosure: You’re no longer responsible for the loan, but you’re not entitled to any remaining proceeds once the home is sold or the loan is satisfied.
The loan servicer will become the homeowner. If the loan balance exceeds the home’s value, mortgage insurance will cover losses, at least if it’s an HECM loan.
Frequently asked questions
Yes, it’s possible to lose your home. Some reasons include falling behind on your tax and insurance payments or if the borrower dies and you weren’t listed on the loan.
The lender may foreclose on the home unless you make arrangements. Some lenders may be willing to give you a time extension to come up with the funds and pay back the balance owed.
Compare Reverse Mortgage Offers
Read more
Reverse Mortgage Pros and Cons Updated July 18, 2022 Thinking of tapping your home equity with a reverse mortgage? Learn about reverse mortgage pros…Read more
How to Get Out of a Reverse Mortgage Updated June 5, 2024 Here’s what you need to know about how to get out of a reverse mortgage….Read more