My dad gave the bank a reverse mortgage and he has since passed away. What can we expect?
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). The mortgage company will likely find out that your dad, the mortgagor, has passed and his passing will entitle the mortgage company to demand that the entire outstanding balance be satisfied. The first thing they will do is determine if an estate proceeding has been commenced and if so, they 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. 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 dad was married and living with his wife at the house, then his wife 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, and I recommend that you speak with an experienced foreclosure lawyer who is also familiar with the HUD regulations and contract provisions pertaining to reverse mortgages.
An interesting case has come down where a New York State Supreme Court Judge has ruled in favor of HSBC which was accused by the NYS Attorney General to have purposefully delayed filing foreclosures in New York. The NYS Attorney General has yet to decide to appeal the decision. See: http://www.bloomberg.com/news/articles/2015-03-31/hsbc-wins-dismissal-of-new-york-foreclosure-practices-lawsuit
Many homeowners have war stories about how their individual foreclosure cases have dragged on for years. Sometimes, the delays are welcomed by homeowners who have no viable way to make affordable mortgage payments. Others, however, are more than qualified and willing to resume making mortgage payments, but due to a long delay in the bank filing for foreclosure, the outstanding loan balance has increased significantly which has the effect of increasing the amount of the mortgage payment and thereby potentially preventing these homeowners from being granted an affordable loan modification later down the road. These homeowners may want to save their money and put it aside so that they can pay down the arrears later on so that they increase their chances to receive an affordable mortgage modification; however, this approach may not work in every case since each case is different. What is true in every case is finding an experienced foreclosure attorney who can navigate the homeowner through the murky waters of a New York mortgage foreclosure. As for the HSBC case referenced above, it will be interesting to see if the attorney general appeals to the appellate division. Stay tuned!
Arnold M. Bottalico is an experienced Long Island, NY foreclosure attorney with over 25 years of experience, and he welcomes your questions and comments.