How Can a Successor Trustee Pay Off a Reverse Mortgage?
A reverse mortgage doesn’t mean that a property can’t be passed down to the next generation when the homeowner moves out of the property permanently or dies, but it complicates the process. The homeowner or the estate retains the title to the home, but the balance becomes due quickly once the owner no longer lives there. The successor trustee must act relatively quickly to keep the property in the family.
A reverse mortgage comes due once occupancy by the owner ceases. If you’re the successor trustee, you have one year from that point to complete the sale of the home, refinance the property or pay the balance with available funds. If you don’t, the lien holder has the right to foreclose and sell the property to recoup its investment.
Keeping the Property
If you want to keep the property, you can pay off the reverse mortgage balance in cash or with funds from the estate, or finance it by taking out a new mortgage on the property. You can contact the existing lender to replace the existing reverse mortgage with a new traditional mortgage in your name, or seek a loan elsewhere and transfer the funds once that process is complete. Typically, the lender isn’t set up to do monthly payments or multiple payments, so you’ll have to come up with the money owed in one lump sum.
Selling the Property
Should you wish to sell the property, if the home has appreciated in value, it’s simply a matter of finding a buyer and repaying the lender. Odds are good that the property is worth more than the reverse mortgage, because as a non-recourse loan, the lender doesn’t have the right to go after the estate or the successor trustee’s funds for any remaining balance. As a result, reverse mortgage lenders leave themselves a cushion between the amount they lend and the appraised value of the home.
If You're Under Water
If the home is worth less than the reverse mortgage, selling the property and remitting the balance to the reverse mortgage holder ends the successor trustee’s obligations. It’s up to the lender to capture the balance via mortgage insurance. However, if you or other heirs want to keep the property, you will have to pay the balance even if the amount owed exceeds the home value.