Reverse Mortgage Pitfalls
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Dear Phyllis,
Years ago, my parents obtained a reverse mortgage; my father passed first. After our mother became ill, my brother moved back into the home and was her primary caretaker. Mom passed a year ago. Because both parents have died, the bank now demands repayment of the loan. My brother will need to find a place to move, but it will be difficult because he wants to keep the stray cats our mother took in. Two months ago, the bank filed a notice of default – of course, we don’t want to lose the home and our parents’ equity, but we don’t want to give it away in a fire sale. I am the trustee but don’t know what my next move should be, as there are just so many issues. Feeling Helpless
Dear Helpless,
You have uncovered serious reverse mortgage pitfalls. Even though a reverse mortgage requires no monthly payments, you still face a hard reality: the loan becomes due when the borrower dies. Because the lender has already filed a Notice of Default (NOD), you now have about 90 days before the scheduled sale date (foreclosure). If you do not pay the amount owed, the lender can record a Notice of Sale, which sets the home for auction in as little as 21 days.
You need to stay in close contact with your parents’ trust attorney or another qualified attorney. You risk losing your parent’s home if you do not act quickly.
Unless your attorney advises otherwise, you should immediately get this home listed for sale with a seasoned real estate agent. Their experience with distress sales may prove valuable in your obtaining an extension of the sale (auction) date. Once hired, your Realtor should begin the process of trying to postpone the sale date.
I understand that you face difficult decisions as the trustee. However, you need to make those decisions quickly. If the lender forecloses on the home, your brother and the stray cats will face eviction. Unfortunately, unless you pay off the mortgage, he and the cats will need to move either way.
