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How Long Do You Have to Pay off a Reverse Mortgage after Death?

June 2, 2018

This is a good question because many people harbor the belief that the bank or lender owns the property after the reverse mortgage borrower passes away.  This of course is completely untrue.  After death, title to the property goes to the next of kin or to whomever the borrower so designates.

 

So How Long Do You Have to Pay off The Reverse Mortgage After Death?

Typically, the children of the borrower get title to real property and then it becomes their responsibility to pay off the loan which would include the interest that has accumulated over the years.   At first these beneficiaries are given six months to settle the debt.  That means, the next of kin can refinance the property and pay off the debt that way and keep the property for themselves either to live in or rent out, or they can sell the property and pay back the debt that way and keep the remaining funds for themselves.

 

Typically those two methods are the most common but they are not the only methods.  The lender does not care where the money comes from just so long as they get it.  You can win the lottery and pay them off.  How you do it is up to you.

 

Now, if per chance, and sticking to the two most common methods of repayment, next of kin run into obstacles in selling the house or getting a new loan, the lender extends the period to one year.  All the lender requires is for those parties to show good faith though documentation, such as providing the listing of the property as “for sale” or specific paperwork that would indicate a new loan is in the works.   Sometimes the lender might extend the period three months at a time, but you’re allowed six months total extension.

 

After obtaining an extension to one year, if the loan is still not paid off at that end of that time, then the lender can and probably will proceed with a default.  A Notice of Default is the first step of a protracted foreclosure process by which a lender obtains the rights to sell the property in question at public auction to recover its investment.  Usually it never reaches that point because but it most definitely can happen if the debt is not paid off within one year after the borrower passes.

 

Please keep in mind that the great majority of people pay off the lender before it reaches this default stage.   Also keep in mind with inflation as it is, many people make a great deal of money by selling their (acquired) houses because there is plenty left over after paying back the debt.   So this idea that the bank owns the house after the borrower passes is entirely untrue.  What is true is that a reverse mortgage is a loan secured by property and like all loans it must be paid back.

 

The main difference between a reverse mortgage and a regular or a forward mortgage is how and when the loan gets paid back.  In either case, forward or reverse, you must pay back the loan.  Another main difference between the two types of mortgages that is often  overlooked, is it is much easier to default with a forward because you have to make monthly payments!

If you miss three in a row you are in serious trouble and subject to a Notice of Default.  But since you don’t have to make monthly payments with a reverse mortgage, you don’t have to worry about that.

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