Can you walk away from a reverse mortgage?
July 9th, 2009
My parents have a reverse mortgage and they need to be in assisted living. The house is not worth much more than the mortgage because they have lived longer than they thought they would! (87) In fact, I think the house may be upside down since I have not checked the value of the home for a while. I know that home values have dropped so their home may have gone down in value too. This seems to be a common problem nowadays with many people who own homes.
This is my question: Can they leave the house to go into assisted living and simply let the mortgage company have the house? What would happen? Also, the taxes and insurance have increased to the point that they can no longer pay them.
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That’s how a reverse mortgage works. You agree to slowly sell the house. When you are done living there, you have to satisfy the mortgage with proceeds from the sale. If there is excess money to satisfy the reverse mortgage, your parents will get it. If there isn’t any money left over, tough luck for the reverse mortgage company…
I think it’s time to tell the reverse mortgage company that they are leaving and need to sell it.
good luck!
Your parents can elect to give the home back to the bank. This will however trigger a foreclosure process if they elect not to repay the current outstanding balance including principal, accrued interest, and servicing fees. You may consider selling the property. There is a good chance that your parents have an FHA insurance reverse mortgage. If this is the case, the mortgage insurance that they have with the loan will cover any negative balance with a sale of the property. The sale does however need to be legitimate. It needs to be a non-arms length transaction, which means that it can not be sold to a family member at a loss, and also needs to be sold for fair market value.