Reverse Mortgages and Foreclosure

: Chris Lee Law Firm

  Filed under: Mortgage

reverse mortgagesAn increasingly popular mortgage loan for our aging population is a reverse mortgage. These loans allow a consumer to convert a portion of their home’s equity into cash that can be used to pay for miscellaneous expenses. Many find these loans enticing because they view it as putting their hard earned equity to work. While these loans do not have to be repaid as would a traditional loan, many people run into trouble when the lender comes to collect(a) if the homeowner moves or dies or (b) defaults on their original mortgage loan.

Defaulting On The Loan

In the event the homeowner defaults on their traditional mortgage loan, the full amount of the reverse mortgage loan becomes due back to the lender. This becomes problematic, especially for someone who is experiencing financial hardships.

Although rare, there are situations in which a lender will attempt to foreclose on a property that holds a reverse mortgage. Reverse mortgages can be considered an asset and subject to liquidation by creditors if not repaid. The liability for repaying the reverse mortgage debt cannot be transferred to heirs of the property or estate, but that isn’t to say the home will be safe from foreclosure.

Filing for bankruptcy can stop an impending foreclosure on a property while the homeowner, or heir, works to repay the balance through Chapter 13. If a debtor is filing for Chapter 7, the remaining equity of the home may be exempt from liquidation. Any unused money that was secured from the reverse mortgage loan will be viewed as income and listed on the bankruptcy petition, which also may be required to be repaid.

 

 

 


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