When a reverse mortgagor passes away, their heirs face several important decisions regarding the property and the reverse mortgage itself. Understanding these options is crucial for making informed choices. Here are the primary options available to heirs:
- Repay the Loan and Keep the Home
Heirs can choose to repay the reverse mortgage loan in full, which includes the amount borrowed plus any accrued interest and fees. This option allows them to retain ownership of the home. Heirs typically have several methods to finance the repayment:
Cash or Savings: If they have sufficient funds, they can pay off the loan directly.
Refinancing: Heirs may opt to refinance the reverse mortgage into a traditional mortgage, allowing them to keep the home while spreading out the payments over time. - Sell the Home
If heirs do not wish to keep the home or cannot afford to repay the loan, they can sell the property. The proceeds from the sale will first go towards repaying the reverse mortgage. Any remaining funds can then be distributed to the heirs. This option is often pursued when:
• The home’s value is higher than the outstanding loan balance.
• The heirs do not want the responsibility of maintaining the property. - Consult with a Reverse Mortgage Specialist
Given the complexity of reverse mortgages, heirs may benefit from consulting with a reverse mortgage specialist or financial advisor. These professionals can provide guidance tailored to the heirs’ specific situation, helping them understand their rights and responsibilities.
Important Note
Non-Recourse Feature
It’s important for heirs of a reverse mortgagor to understand that reverse mortgages are structured as non-recourse loans. This means that in the unfortunate event of the mortgagor’s passing, heirs will not be personally liable for any debt beyond the value of the home. Essentially, the loan can only be repaid through the sale of the property, and if the home’s value is less than the outstanding loan balance, the heirs will not owe any additional amount. This provides a level of financial protection, ensuring that heirs can inherit the home without the burden of excessive debt.
Conclusion
The passing of a reverse mortgagor presents heirs with several options regarding the property. Whether they choose to repay the loan and keep the home, sell the property, or explore alternatives like a deed in lieu of foreclosure, it is essential for heirs to understand their choices and seek professional guidance if needed. Making informed decisions can help protect their financial interests and ensure a smoother transition during a challenging time.