Reverse mortgages are a great way for seniors to use the equity in their primary residence to receive monthly payments to help pay for living expenses. Reverse mortgages are generally associated with the FHA's Home Equity Conversion Mortgage (HECM). Mortgage companies must comply not only with state procedural and substantive laws, but must also comply with FHA and HUD rules and regulations since reverse mortgages are insured through FHA and/or the Department of Housing and Urban Development (HUD). When the mortgagor/owner dies, the mortgage company is entitled to demand that the entire outstanding balance be satisfied. The first thing it will do is determine if an estate proceeding has been commenced and if so, it will serve the representative of the estate with a default notice. If no estate proceeding has been commenced, then the mortgage company will likely seek to file a petition for administration and the court will appoint an administrator (usually a public administrator). Once the administrator or estate representative is served with the default notice, the estate will have the right to have the mortgage company undertake to have an appraisal done (must be a HUD certified appraiser). If the appraisal shows the value of the property less than the amount owed on the mortgage then the estate is entitled to pay the amount owed the bank or 95% of the appraised value, whichever is less. Generally, if the default is not cured within 30 days, then the mortgage company can move to commence foreclosure proceedings. However, if your decedent was married and living with a spouse at the house, then the spouse may be entitled to stay in the house, but in order for this to occur, certain conditions must be met. There are many other nuances that are too long to discuss. Always speak with an experienced foreclosure lawyer who is also familiar with the HUD regulations and contract provisions pertaining to reverse mortgages.
Arnold M. Bottalico is an experienced Long Island, NY foreclosure attorney with over 25 years of experience, and he welcomes your questions and comments.