To understand the process of reverse mortgage foreclosures, we need to define a reverse mortgage, who can get one, and why they would be foreclosed. Once the process is unavoidable, however, older homeowners need to know how the process worked and what they should do based on the type of reverse mortgage they’ve taken out.
Even if a reverse mortgage foreclosure is unavoidable, it pays to be prepared, to have a timeline ready, and to know what’s expected of you when that time comes.
The question of whether you can foreclose a reverse mortgage should be preceded with the question of which type of reverse mortgage you have. The most common is called a Home Equity Conversion Mortgage. These are federally insured loans that have insurance for the benefit of the lenders. In the event of a foreclosure on a house whose value does not cover the value of the amount borrowed, the Federal Housing Administration will compensate the lender.
Normal mortgages are paid to homeowners in a lump sum, who pay them back in monthly installments. Home Equity Conversion Mortgages are different or “reversed,” as the name implies. The homeowner receives monthly payments in sums or in a line of credit. These add up to the loan, which often has a maximum borrowing limit.
There’s a limit to how much the government allows borrowers to withdraw in the first year, equal to 60% of the loan, plus 10% of the principal.
This loan doesn’t have to be paid back by the homeowner until specific things happen, which we’ll talk about in a minute. These loans are designed to give retired homeowners access to cash that helps them pay off a mortgage without sacrificing their retirement funds.
However, homeowners with reverse mortgages can face foreclosure if they don’t adhere to their contracts or if the borrowers die. In that case, you may be wondering about the process of doing so and what surviving family members will be expected to tackle during the repayment timeline.
The borrowers or their estate have 30 days to respond to the lender’s request for payment. After that time, the lender can initiate a foreclosure on a house with a reverse mortgage.
The repayment process, if the request is accepted, lasts a maximum of 6 months with two 90-day extensions possible upon request—the timeline changes based on how the foreclosure was initiated.
If the title is transferred or the house is sold, the reverse mortgage becomes due. If the homeowner no longer lives in the home as a primary residence either because of a move or because of an illness that lasts at least 12 months, this is another reason for the foreclosure process to begin.
Once this process begins, the lender will send a “due and payable” notice, and the borrower will have a month to respond. They will then have 6 months to pay back the loan and could request up to 6 more months in extensions if they need it.
Lenders initiate the foreclosure process on a reverse mortgage with a letter to the borrower requesting the loan balance to be paid. The timeline set by the contract will also be listed in this letter. The timeline will change depending on the event that initiated the foreclosure, whether it was the property being sold, the homeowner’s death, or a breach of contract. The surviving borrowers or their heirs have to repay the loan over the specified timeline.
How long does a reverse mortgage foreclosure take? On average, the lender will allow 6 months for the borrower or their heirs to repay the mortgage. Often, two 90-day extensions are possible as well, so long as the estate is making payments during the process.
In other words, the whole foreclosure process can take a maximum of 13 months altogether or a minimum of 6 months, depending on the speed of the borrower’s response to the lender’s letter.
Reverse mortgages can be nerve-wracking. Older homeowners that have loans may fall behind paying them off, neglect aspects of their contract, move, become ill for at least a year and unable to live in their house, or even die. In all these instances, reverse mortgage borrowers can face foreclosure. The timeline for dealing with such a foreclosure, either by the homeowners or the surviving members of their estate, is the most important knowledge for those burdened with this process.
The purpose of this article is to lay out that process for you. When any of these events happen, and the lender sends their “due and payable” notice to the estate, those responsible for the repayments have 30 days to respond and begin the foreclosure process. After this, lenders give estates 6 months to pay off the loan, with the possibility of two additional 90-day extensions at the borrower’s request.
The first thing on your mind may be, “how long does a reverse mortgage foreclosure take?” The hard answer is, no longer than 13 months and no shorter than 6, or however long it takes to pay off the loan. Depending on the circumstances of the foreclosure and the financial situation of the borrowers, this process could take less or more time.
Knowing this basic timeline can help you react better to this difficult circumstance and pay off the loan in time.