Second of two columns on reverse mortgages. Click here to read the first column.
What should my heirs know about repaying my reverse mortgage loan after my death?
They will receive a letter demanding repayment almost immediately and must respond promptly to avoid a follow-up foreclosure notice.
The letter's contents are mandated by the U.S. Department of Housing and Urban Development, which insures reverse mortgages. Its presentation depends on the lender. Some mortgage firms express condolences. Others don't.
The mortgage servicing company will communicate only with the estate's legal representative — i.e., the person named as executor. Your executor has no legal authority until a court confirms his or her appointment — usually within three to six weeks after the family signs the papers, if there are no objections, says Eric Kramer, a Uniondale estate lawyer. Creditors typically accept this delay, he adds, but the court will provide preliminary letters of authorization if you show a good reason for needing them. Averting foreclosure is a good reason.
Within 30 days of your death, the mortgage servicer automatically orders an appraisal of your house to determine its current market value, says Steve Irwin, executive vice president of the National Reverse Mortgage Lenders Association. Your estate is billed for that appraisal. The mortgage servicer also may pay your property taxes and insurance premiums after your death, then bill your estate for reimbursement.
Your family's repayment options depend partly on the market value of the house. "For example, if the outstanding loan is $100,000 and the property is worth $150,000, the loan must be paid off in full through the sale of the house," says Irwin. "If the loan is $100,000 and the house is appraised for $80,000, the survivors are only responsible for paying back 95 percent of the appraised value."
THE BOTTOM LINE Your estate repays your reverse mortgage when you die.
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