You may have heard about homeowners 62 years and older choosing reverse mortgage and under such circumstance, the property was foreclosed. You may ask, why did this happen? In what circumstances can this occur? To answer your questions and to learn more about reverse mortgage, below are some facts?
What Is A Reverse Mortgage?
Reverse mortgage were made to enable elderly homeowners to convert the equity in their homes to income or line of credit. This is only available to homeowners who are age 62 years or older, currently lives in the property as a principal residence, and own the home outright or have significant equity in the property.
How Does Reverse Mortgages Work?
Unlike traditional mortgage where the borrower gets a large sum of money based on his/her salary, job history and credit worthiness, in reverse mortgage, the lender makes the payments to the borrower. The borrower can get the loan through monthly payment, a lump sum, a line of credit or through a combination of these options.
When Does A Reverse Mortgage Become Due and Payable?
It becomes due and payable once one of the these situations take place:
All borrowers have died. Once this scenario happens, the heirs have these options to choose from:
- Repay the loan so they can keep the house.
- Sell the property and use the proceeds to repay the loan.
- Deed the property to the lender.
- Abandon the property and allow the lender to foreclose it.
The property is sold or the property’s title is transferred. When a property is sold, the escrow company will accept the money of the purchaser and pay the reverse mortgage together with other liens on the property.
The borrower doesn’t use the property anymore as their principal residence. This is considered one of the most common reasons why a property gets foreclosed. In such circumstance, the homeowner may be away from the property for instance, because he was sent to a nursing home due to illness. But if this becomes permanent, such loan will become due and payable.
The borrower fails to meet the obligations of the mortgage. The term of the mortgage requires the borrower to pay for the homeowner’s insurance, the property taxes, and to keep the property in great condition. If the homeowner fails to meet these, the loan will become due and payable.
How To Avoid A Reverse Mortgage From Foreclosure?
As a borrower, to avoid foreclosure, you have to correct the default, pay off the debt, deed the property the lender, or sell the property for at least 95% of the appraised value with the sale’s net proceeds going towards the mortgage balance.
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