The basics of a reverse mortgage short sale

Short Sales with a Reverse Mortgage

A reverse mortgage is a special home loan for homeowners aged 62 and older that lets them turn the home’s equity into cash without monthly payments. The borrower can receive the money as a lump sum, regular monthly income, or in flexible amounts as needed.  The homeowner remains responsible for  making payments on the property taxes, insurance, HOA fees and any other assessments on the home. In a reverse mortgage, the loan and interest only become due and payable when the home is sold, or the owner moves out permanently or passes away. 

Sounds simple right?  Theoretically, the balance of the loan would never exceed the home's value, and paying it off wouldn't be an issue when the loan became due and payable. However, sometimes the market value of the home may decrease; perhaps in a downward market, or due to property falling into disrepair. Sometimes, the interest and fees grow so much, that the loan value becomes higher than the home could sell for. What happens then?

Almost all reverse mortgages are backed by HUD. If you have a HUD HECM reverse mortgage serviced by Celink (Compulink Corporation), and the loan has become due, and the debt exceeds the value of the home, you have several options in this scenario:

• Pay off the loan in full.
• Complete a deed-in-lieu of foreclosure.
• Let the home foreclose.
• Sell the home in a short sale.