How is a reverse mortgage foreclosure different from a standard foreclosure? (HUD Guidelines 24CFR206.125)

Reverse mortgages are exclusive to homeowners over 62 years old, so it follows that as that demographic rises reverse mortgage foreclosures will become more common. I just showed one last weekend and it raised some questions. Reverse mortgage foreclosures are different from standard foreclosures in that they are not usually triggered by financial reasons… learn more about them below.

First… what is a Reverse Mortgage?

A reverse mortgage is a special type of home loan that lets homeowners 62+ years old who own their home outright or have a low mortgage balance convert a portion of the equity of their home into cash. The cash may be paid out in monthly payments or in a lump sum like an equity line of credit. The homeowner must live in the home and pay real estate taxes, utilities, and homeowners insurance. However, unlike a home equity line of credit, there are no monthly payments and the loan doesn’t have to be repaid until the property is sold or is no longer used as a primary residence. There is even a purchase option to allow the purchase of a smaller home and never having a house payment.

More info on reverse mortgages from the FTC.

Second… what can trigger a Reverse Mortgage Foreclosure?

Here are three scenarios that can trigger a foreclosure on a reverse mortgage…

  1. The party who established the reverse mortgage has died
  2. Property taxes and insurance are not paid
  3. The owner moves out and it is no longer their primary residence

Third… what are stipulations in HUD Guidelines 24CFR206.125

Some general guidelines below… always ask for details about requirements for a specific property… 

  • Price is not negotiable… property cannot be sold below list price except to an heir, who can purchase for 95% of list price
  • No electronic signatures
  • No seller contribution to buyer closing costs
  • 60 days minimum escrow period
  • Property sold in AS IS condition
  • Details from HUD

 

Sharlene Hensrud, RE/MAX Results – Email 

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I love what I do! Highly insightful, analytical and creative, there is nothing I love more than helping you find the right solution for your real estate transition. My mission is to serve my clients with honesty and integrity, exceeding their expectations in service and support… and to help others by donating a portion of every transaction to Habitat for Humanity.

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