For years, reverse mortgage originators have been telling borrowers that reverse mortgages are "non-recourse". They could never owe more than their house is worth at the time the loan is paid back. The Merriam-Webster Dictionary defines non-recourse as being or based on an agreement in which the lender has no right of recourse to the borrower's assets beyond stated limits.
HUD recently clarified what "non-recourse" means in regards to an FHA reverse mortgage. If the estate of the borrower wants to retain the property the reverse mortgage must be paid in full.
Repayment is required if all borrowers move out of the home permanently or fails to live in the home for 12 months in a row.If the property is sold to repay the reverse mortgage, it may be sold for at least the lesser of the unpaid loan balance or 95% of appraised value.
There are a couple of other details in the repayment of a reverse mortgage that should be noted. When the home is sold, it must be an "arms-length" transaction. For instance there should be no relation between the buyer and seller, the selling price needs to be consistent with the current open market. Any costs paid by the seller should be customary.
Repayment is required when a "Maturity" or a default event occurs. Defaulting on a reverse mortgage is rare. One thing to keep in mind when getting a reverse mortgage is the borrowers need to be able to afford to pay their property taxes, insurance and maintain their home. If they do not they will be in default and the loan could be called due. If there is a doubt that this is the case, serious consideration should be taken to either sale or make other arrangements.
A reverse mortgage borrower can also default on a reverse mortgage by declaring bankruptcy or abandoning their home. The loan may also become due if you rent your home, change your home's title (does not include putting it in a living trust), change the zoning or add any debt to the home. It is very important that a consumers do their homework and do business with an experienced reverse mortgage professional.
Even though reverse mortgages have been around for years, they have yet to hit the height of their maturity. With the boomer's just turning 62 and the average age of a reverse mortgage borrower just 73, we have another decade before this industry and product hits its stride and full potential. I can for see this product and others becoming as common as IRAs. It won't be "if" I get a reverse mortgage for the boomer's, it will be "when". As it stands today, there are strict rules against cross selling insurance and financial products with reverse mortgages. With the aging of America and the largest asset most people have being their home, it only makes sense that the future holds hybrid equity products for retirement, home care, life insurance and more. The FHA reverse mortgage industry at the most is in it's infancy stage.
If you have a reverse mortgage question, call Angella at 866-949-7030 or log onto www.reverse-your-mortgage.com. Angella Conrard, is a reverse mortgage advisor, the president of the National Aging in Place Council, Orange County, NRMLA member and the director of the So. OC National Care Council.