Florida Estate Planning Attorneys Explain how a Reverse Mortgage may Affect Beneficiaries

torn dollar billReverse mortgages are there to help seniors who do not have adequate funds for retirement. They tap into their home’s equity and receive monthly installments, but do not owe any payments on the home. With these loans, there is no principal or interest due on the mortgage. Instead, the loan accrues interest over time, but is not due until the borrower leaves the home or passes away.

When a family home has a reverse mortgage on it, testators as well as their loved ones may wonder what will happen to the home once they have passed.

Reverse Mortgages Are Due Upon Death

Reverse mortgages are technically payable upon a loved one’s death. This is because a borrower’s family is unlikely to have the assets to purchase the home, let alone sell it on the day of death. What happens is that the reverse mortgage servicer will send a letter to the beneficiaries of the estate, notifying them of the rules and that the balance is due on the loan.

These letters are often harsh and insensitive.

How Does the Servicer Know the Borrower Has Died?

Mortgage servicers often keep track of their borrowers, because the average reverse mortgage borrower is elderly. They monitor the Social Security death index and databases, and send out annual occupancy letter requests to borrowers.

When they do not receive a letter back, or they note that property taxes have not yet been paid on the home, they will start investigating. From there, they contact the borrower and then reach out to surviving family members.

Beneficiaries Are Not Required to Sell

While the balance is due upon death, beneficiaries of your estate are not necessarily required to sell the home. However, if they want to keep the home, the loan must be paid in full to the reverse mortgage servicers.

Beneficiaries can also get a loan in their own name to purchase the home or pay off the balance due. However, they must have the credit and income that satisfies bank requirements.

When the balance cannot be paid in full, the beneficiaries then must sell the home.

What About Surviving Spouses?

When a couple has a reverse mortgage, but only one spouse dies, the surviving spouse may be able to remain in the family home – even if he or she is not a co-borrower in the reverse mortgage. Unfortunately, reverse mortgages do put some family members at risk for being foreclosed upon and forced out of the home.

The rules for surviving spouses are highly complex, and it is best to consult an attorney to determine if you could remain in the home and what your options are if the lender attempts to foreclose.

Prepare Ahead of Time and Update Your Will to Reflect Your Reverse Mortgage

If you have taken out a reverse mortgage on your home, now is the time to update your estate plan with your attorney. The team at Beller & Bustamante, P.L. can help you set up protections, additional funds, and ensure a peaceful transition for your beneficiaries.

Schedule a case evaluation today by calling 904-288-4414 or completing our online contact form.