How to handle Death of Spouse Holding Reverse Mortgage

Question:

My ex-husband just died. There was a reverse mortgage on the house. When we applied for the reverse mortgage, the lender told us to take me off the deed because I was eleven years younger than him. She told us to wait three months and put me back on the title. We did this. I live in another state. My children want to just wait for the bank to notify them of what to do. I wonder if I am involved in any way. Should they notify the bank of his death? I don’t want to make any trouble for them.

Answer:

Because you are not still living in the property, it really doesn’t matter whether you were on the loan at the time or not. Since you do not live there now, the options are still the same.

I strongly suggest that the kids (I assume they are now the heirs) contact a local real estate professional and determine the value of the property if sold at this time. The have the option of keeping the home, selling the home or walking away and letting the lender deal with it without any recourse to them.

If there is still equity in the home, they will know when they find out what it will sell for in today’s market. Then they would want to move quickly to protect the equity as the interest continues to accrue until the house is sold. If one of them wants to retain the home, the sooner the old loan is paid off, the less interest it accrues, and the payoff balance is lower.

If there is more owed on the reverse mortgage than the property is worth, they still have the option of walking away without any recourse or paying off the existing loan at 95% of the current market value of the existing balance of the loan, whichever is less.

In other words, if the home is worth $100,000, the current loan amount is $120,000 and the kids want to keep the home, they can pay off the loan and keep the property for 95% of the current value or $95,000 even though the outstanding balance is $120,000.

Knowing the options and which way they want to proceed will really help them because if the lender becomes aware of the situation and it is clear that the heirs are not making any attempt to retire the debt, the lender will have no choice but to assume that they are not planning to keep the home and are going to just wait for the lender to foreclose. Under this scenario, the lender would act more quickly to foreclose.

As far as your involvement or responsibility, I am afraid I cannot advise you on legal matters, but I am sure that if you contacted an attorney, based on what you have told me, he will tell you that you have no liability whatsoever to the lender since you signed away your right to the property prior to the loan and signed no Promissory Note, Deed of Trust, Security Agreement or any other legal document binding you in which you agreed to repayment of the obligation.

Again though, I am not an attorney in any state let alone the one in which that property is located and I haven’t seen the documents you did sign so I would encourage you to verify with competent legal counsel that what you believe you signed is actually what you did sign.

If you made no agreement to repay, then any foreclosure would be against the property and in the name of your ex-husband only. However, if you did sign the security documents, your credit would be impaired as your name would be included in any foreclosure action.

That’s why it would pay for you to be sure of the circumstances but then the heirs should also make plans quickly so that they protect their inheritance as well.

Also See:

What Heirs Need to Know About Reverse Mortgages

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