How To Stop a Reverse Mortgage Foreclosure
When the borrower on a reverse mortgage dies or when the lender forecloses on the home, the lender will notify the borrower that the loan is “due and payable.” When you receive this notice, you have 30 days to take action by buying the home, selling the home, or turning it over to the lender—or you can request an extension. The lender must automatically grant an extension for up to six months. You can request additional extensions that may last up to a total of 18 months. You can avoid foreclosure in a few ways.
Fix the Issue or Issues
If the lender is foreclosing because you’re late on tax payments or the home is in poor repair, you may be able to work with them to get the foreclosure canceled by paying the bills due or fixing up the property. Communication is important; find out what the servicer wants corrected, and work toward correcting it.
Pay Off the Loan
Another way to avoid foreclosure is to pay off the balance of the loan using funds from other sources. If you have money in a savings account, for example, repaying the loan will prevent foreclosure. You might also try to refinance with another mortgage.
Seek a Deed in Lieu of Foreclosure
If you don’t want to sell the home, which can be a time-consuming process, you can give the home to the lender through a deed in lieu of foreclosure. You’ll give up your home but avoid foreclosure. Your lender will sell the home to recoup its losses.
Sell Your Home
One way to avoid foreclosure is to sell your home. You can use the money from the sale to pay off the loan’s balance, keeping the remainder for yourself. Even if you sell for less than you owe, mortgage insurance should cover the remaining balance.
When a Reverse Mortgage Home Might Be Foreclosed On
Here are a few common scenarios where a lender might foreclose on a reverse mortgage.
Failing To Keep Up on Property Tax, Insurance, or Other Fees
When you get a reverse mortgage, your home serves as the collateral for the loan. The lender expects you to continue paying any required costs to maintain ownership of the home and to protect it. If you start missing property tax payments, fail to pay for insurance, or miss homeowners association (HOA) or condo fee payments, the lender may start foreclosure proceedings.
Letting Your Home Fall Into Disrepair
Your home’s appraised value that the lender considers when it offers you a loan is based on its condition. Lenders want your home to maintain its value because it serves as the collateral for your loan. If you let the home fall into disrepair to the point that its value begins to drop, the lender might foreclose.
No Longer Occupying the Home as a Principal Residence
One of the conditions of a reverse mortgage is that you must occupy the property securing the home as a principal residence. In general, that means spending more than half of each year in the home, although there may be other requirements you must meet.
How Foreclosure Works With a Reverse Mortgage
Foreclosure on a reverse mortgage involves a few key steps.
Triggering Event
Before the lender can foreclose on a loan, a triggering event must occur. For example, if the borrower dies, moves out of the home, or falls behind on property tax payments or home insurance bills, then the lender could start foreclosure proceedings.
Due and Payable Notice
When the lender begins the foreclosure process, it will send a due and payable letter to the borrower or their estate to inform them that they must pay the loan. Borrowers have the right to request an extension of the due date of up to 180 days.
Time To Cure the Loan
State laws will outline how long you have to satisfy the debt or resolve problems to avoid foreclosure. This is called “curing” the loan. For example, in Massachusetts, you have 150 days from the time you receive notice from the lender.
Foreclosure
After the period allowed for the borrower to cure the loan, along with any extensions that were allowed, the lender may begin foreclosure. The precise process may vary by state, but it ends in the lender selling the home to recoup their losses.
