When the last surviving borrower sells or conveys title of the property, passes away, or does not maintain the property as a principal residence for a period exceeding 12 months due to physical or mental illness, the loan has reached what is called a “maturity event.”
Once the Loan Servicer has verified that a maturity event has occurred, it will mail a “Due and Payable” notice within 30 days to the borrower’s heirs informing them the loan must be repaid and providing options for doing so. The heirs can sell the property, or purchase the property for 95 percent of its current appraised value. If any equity is remaining after the sale of the home, it belongs to the heirs.
If there is no equity left in the home, or the heirs are not in a position to sell the property, they have the option to select a Deed in Lieu of Foreclosure. In this case, the estate gives the Servicer permission to take legal ownership of the property and the responsibility for selling it.
No matter what repayment option is selected, future payments stop at death. However, interest, mortgage insurance premiums and homeowner’s insurance continue to accrue until the loan is settled.
Your heirs will work closely with the Servicer to ensure the loan is paid in full in a timely manner. While payment is due immediately, the heirs have six months to satisfy the debt. If they are selling the property and it is still on the market after six months, the heirs can contact the Loan Servicer and request a 90-day extension, subject to approval by HUD. One additional 90-day extension can be requested, again with HUD’s approval.
If the initial Due and Payable notice is not responded to, or the home hasn’t sold after the 90-day extensions have expired, or if the borrower has no heirs to help pay off the loan, the Servicer may initiate foreclosure.
If, however, you or your heirs are actively working to either refinance your property or sell your property so as to satisfy your reverse mortgage, then foreclosure may be forestalled. The key to a proper and clean end to a loan is to work closely with your Servicer from the time the loan is called due and payable.