What happens to a reverse mortgage after the person have to go to nursing home?

What happens to a reverse mortgage after the person have to go to nursing home. How does that work?

By | 2013-08-28T01:22:21+00:00 August 28th, 2013|Mortgages Home Loans Interest Rate|1 Comment

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  1. MRA August 28, 2013 at 2:18 AM - Reply

    This assumes that there is only one senior on the loan. As long as the person intends to return home and does so within 12 months, then nothing happens. One of the conditions of a reverse mortgage is that the home remains the person’s primary residence, where they live most of the time. The same applies if they are in and out of hospitals and nursing homes, or if they are traveling snow birds or visiting children in different states. It is their intention to return home as their primary residence.

    If they are moving to the nursing home permanently, with no intention of returning, nor do they have the ability to return, then you need to inform the lender, and the loan becomes due. All reverse mortgages give you 6 months to pay off the loan, and you can possibly get two 3-month extensions for up to a year. But this is only if you are communicating with the lender. If the lender finds out that they moved out and were not informed, they will not be open to offering any extensions beyond six months.

    If the senior is moving out permanently, then the heirs have two choices. If the heirs want to keep the home, they can obtain a loan in their own names to pay off the reverse mortgage. If they don’t, then once it is sold, the lender gets paid off first, and the heirs keep the difference. If the loan balance is greater than what the home can sell for, the heirs are not personally liable for the shortfall (nor are any of the senior’s other assets, if any). Only the house stands for the loan. The heirs can do a Short Sale (for whatever reason they may have); sign a Deed in Lieu of Foreclosure; or walk away and the bank will foreclose within about 6 months.

    Heads up. Typically, a lender will initiate the foreclosure process right away because they know it takes six months anyway, which is the time they allow for you to sell the home or refinance. It tends to leave a bad taste in the mouth because you will get some nasty form letters. But if they wait for you to sell or refinance first, before initiating the standard 6-month foreclosure process, and then 6 months later the lender finds out you haven’t done either, they have effectively lost all that time. It’s the way it is. Lenders have been defrauded too.

    P.S. If there are two seniors, and only one goes to a nursing home permanently, there is no change to the loan. As long as there is as least one senior who is on the loan and title still living in the home as their primary residence, the reverse mortgage is still in effect open-ended.

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