What to do when your HECM is due

What To Do When Your HECM Is Due

How do I know when my HECM is due and payable?

A "maturity event" causes the loan to become due.

Maturity event - Occurs when the borrower:

  • Sells the home;
  • Passes the property title to someone else;
  • Dies;
  • Leaves the principal residence for more than 12 consecutive months due to physical or mental illness;
  • Fails to pay property taxes, homeowner's insurance premiums, condo fees or other mandatory obligations under the loan terms; or
  • Fails to maintain the home by making necessary repairs.

Remember: Your HECM reverse mortgage is a loan, and it has to be repaid.

Step 1: You have a maturity event.

You're single.

  • If you die, sell your home, pass the property title to someone else or leave the property for more than 12 consecutive months due to physical or mental illness, you've had a maturity event. The reverse mortgage is now due and payable.

You have a spouse.

  • If both spouses were at least age 62 and on the home's title when they obtained the HECM, the surviving spouse does not have to repay the loan. The surviving spouse can stay in the home and will have access to the reverse mortgage proceeds.
  • The loan must be repaid when the last surviving spouse dies or leaves the property for more than 12 consecutive months due to physical or mental illness.

Remember: If the borrower dies, the loan servicer must be contacted immediately after the death. Do not delay informing the servicer! The deadlines in the following steps depend on the date of the borrower's death and not the date the servicer was informed of it.

Step 2: You contact your loan servicer.

The servicer will send a “due and payable” letter to the borrower or the borrower’s heirs within 30 days of the maturity event. The letter includes information about the current loan balance as well as the options to repay the HECM, the deadline to respond to the letter, and what to do to avoid foreclosure.

The servicer will order an appraisal to find out the property’s current market value.

The borrower or heirs must respond to the due and payable letter within 30 days. If they do not respond, the loan servicer can begin the foreclosure process.

To know: Heirs to the property must stay in contact with the loan servicer and follow the servicer's deadlines and instructions to avoid foreclosure. The loan servicer needs to be repaid for the loan. Foreclosure is a process to ensure the servicer is repaid.

Step 3: You make a plan for repayment.

How to repay the HECM reverse mortgage:

Payment of the HECM loan balance is due immediately; however, the heirs can have as much as six months to repay it. The loan balance includes the total sum of the HECM loan proceeds plus interest and any unpaid fees, such as mortgage insurance.

If the heirs need more time to sell the property or refinance it for purchase, they can request a 90-day extension from the servicer. The U.S. Department of Housing and Urban Development (HUD) must approve the extension. If needed, a second 90-day extension can be requested for HUD's approval.

How to repay the HECM reverse mortgage:

Sell the property

  • To obtain 90-day extensions for selling the property, the heirs must show active marketing of the property for sale, such as a real estate listing.

Purchase the property

  • The property can be purchased for 95 percent of its current appraised value.
  • The heirs can use private savings or obtain another mortgage to pay off the HECM loan.
  • For a 90-day extension, the heirs must show that they are actively pursuing financing for the property.

During the settlement period, interest, mortgage insurance premiums and homeowner’s insurance will continue to accrue until the loan is paid. In other words, the loan balance will increase until the loan is settled and repaid.

Step 4: You settle the loan.

Foreclosure

The servicer may initiate foreclosure for the following reasons:

  • 1. The borrower or heirs haven't responded to the servicer's due-and-payable letter (also called a “demand letter”).
  • 2. The property hasn't sold after the 90-day extensions have expired.
  • 3. The borrower has no heirs to repay the loan.

The loan servicer or a foreclosure attorney will send pre-foreclosure notices to the borrower’s home address. First legal action on foreclosure must be initiated within six months of the due-and-payable date, unless HUD has approved extensions.

Home is sold or purchased by heirs.

The loan is satisfied.

Note: The servicer may send pre-foreclosure notices to borrowers or heirs who are trying to refinance the property or sell it to repay the loan. State law may require servicers to send these notices.

The pre-foreclosure notices aren't necessarily cause for immediate concern. They are a signal that you should contact the servicer to acknowledge the letters and ask for additional instructions.

The HECM is a non-recourse loan. When the home is sold, you do not have to pay any more than the current appraised value. If the loan balance is less than the market value of the home when sold, you or your heirs keep the additional equity in the home.

What if foreclosure occurs?

Foreclosure is not the ideal outcome when the HECM is ending, but it's important to know what happens when foreclosure occurs.

During foreclosure, the bank that invested in your loan will take ownership of the home and will sell it to satisfy the loan balance.

Note: After foreclosure, the borrower or heirs no longer have responsibility for the home or the loan. The HECM has ended, and no additional loan proceeds will be provided to the borrower after foreclosure.

Options if you're the borrower's spouse:

Is your name on the deed?
Is your name on the HECM loan?

  • See the information above about maturity events and surviving spouses.

You are under age 62 and your name is not on the deed:

  • You may qualify as an "eligible non-borrowing spouse" and remain in the home. The HECM loan will not become due and payable until another maturity event occurs.

Qualifying as an eligible non-borrowing spouse

You must meet the following conditions to qualify as an eligible non-borrowing spouse:

  • 1. Your property tax and homeowner's insurance payments are up to date.
  • 2. You're maintaining the property as required for your HECM.
  • 3. You were legally married to the borrowing spouse when the reverse mortgage originally closed, or you were in a committed same-sex relationship with the borrower and could not legally marry the borrower at the time of the loan’s origination, but you became legally married before the borrower died.
  • 4. The property has been your principal residence throughout the duration of the HECM.
  • 5. You have, or are able to obtain, within 90 days after the last surviving borrower’s death, good, marketable title to the property or a legal right to remain in the property for life.

If you're not qualified as an eligible non-borrowing spouse, the HECM will become due and payable. The options are to repay the loan or sell the property and find other housing. Contact the loan servicer to confirm your options.

Options if you're an heir to the estate:

If you are the heir to the estate and the last surviving borrower dies, you are responsible for settling the HECM loan.

Sell the home

  • See Step 3 above.

Purchase theproperty

  • See Step 3 above. The home's purchase price will be 95 percent of its appraised value. If the home has depreciated in value and is worth less than the loan balance, you are not responsible for repaying more than the home is worth.

Deed in Lieu of Foreclosure

  • If you and the other heirs don't want to be responsible for selling the property, this option passes that responsibility to the loan servicer.

Source: The National Reverse Mortgage Lenders Association publication, "What Do I Do When My Loan Is Due?" http://www.reversemortgage.org/Repayment