Many seniors use reverse mortgages to tap into their home equity in order to maintain their standard of living during retirement. Those who do so need to make sure their heirs are aware of the mortgage, because when the borrower dies, they will have to decide on a course of action quickly.
The heirs can keep the property, sell it, or turn it over to the lender. That decision is usually determined by whether there is equity left in the property.
Reverse mortgages are “nonrecourse” loans, which means that if the loan balance exceeds the home’s value, the lender cannot take possession of the estate’s or the heirs’ other assets.
After the lender is notified of the borrower’s death, an appraiser will determine the home’s market value. The amount due to the lender is the lesser of the loan balance or 95 percent of the home’s appraised value. (The remaining 5 percent is paid by government insurance.) The heirs may sell the house or keep it by paying off the loan with cash or other financing.
Heirs initially get six months to pay off the loan. While they work out the details, interest and monthly insurance premiums continue to accrue. Those who wish to keep or sell the home may request up to two extensions of 90 days each by showing they are actively trying to sell the home or to arrange financing to pay off the loan.
On the other hand, if the home has little or no potential equity, the heirs may choose to simply hand it over to the lender rather than go through the hassle of selling it. This is known as “deed in lieu of foreclosure.”
Hook Law Center assists Virginia families with with guardianships and conservatorships, long-term care planning, special needs planning, veterans benefits, and more. To contact a Virginia Beach special needs planning lawyer or to learn more, visit http://www.hooklawcenter.com/ or call 757-399-7506.