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As you navigate the aftermath of a loved one’s death, you will need to determine how to handle their remaining debts. If they still have a mortgage on their house, the heirs of the property may need to assume the mortgage payments or sell the house to pay off the remaining balance. But what happens if the decedent took out a reverse mortgage?
Does a reverse mortgage go through probate? You will certainly need to consider the reverse mortgage during the probate process, but the actions you take depend on your wishes for the property. Whether you are following New Jersey probate laws or probate in another state, this guide is a helpful starting point.
What Is a Reverse Mortgage?
Knowing how reverse mortgages work can help determine how to proceed during probate. A reverse mortgage is a loan in which a homeowner borrows money against their home’s equity.
The borrower can receive the loan as a lump sum, a fixed monthly payment, or a line of credit. However, unlike traditional mortgages and loans, the borrower does not need to make any loan payments until they sell their home, at which point the lender will repay the borrowed amount, plus interest and principal, from the home sale.
Reverse mortgages are common among older homeowners who have a large amount of equity in their homes and need extra cash to fund their retirements. Many banks only offer these loans to homeowners 62 and older. Often, older borrowers do not make any loan payments in their lifetimes; instead, they use the loan proceeds until they die, at which time a beneficiary repays the loan.
Because of this, finding that a loved one had a reverse mortgage at the time of their death is not out of the ordinary. But does a reverse mortgage go through probate, and how do you handle this debt as you start the process of closing their estate?
Does a Reverse Mortgage Go Through Probate?
Reverse mortgages are very similar to traditional loans in terms of how they apply to probate. Before you can distribute the decedent’s assets to beneficiaries, you need to use their estate to repay any debts they owed.
You cannot simply ignore the reverse mortgage during probate. You will need to settle the loan or make an arrangement with the lender before proceeding. Contact the reverse mortgage company as soon as possible to begin this process.
If the decedent had a reverse mortgage for a while, they may owe a significant amount of money on it. Understand that this may impact your ability to receive the decedent’s house as an inheritance, even if they left you their home in the will.
Options for Dealing With a Reverse Mortgage During Probate
Does a reverse mortgage go through probate? Yes, but you have a few options for how to proceed. Speak with the lender and explore these routes to determine your next course of action.
Pay Off the Loan
If you and the other heirs have enough money to pay off the reverse mortgage balance (or are willing to refinance it), this may be the smartest course of action should you want to keep the home. Often, the value of a home in the current real estate market is higher than the amount owed on a mortgage or reverse mortgage.
Many reverse mortgages are structured so that they become due upon the borrower’s death. You’ll likely need to pay the full balance of the reverse mortgage before you can take possession of the house.
Sell the Property To Pay Off the Reverse Mortgage
If you and the other heirs do not wish to take possession of the property, selling it to pay off the reverse mortgage may be the right choice. You will need to change the house title to your name before selling it.
Reverse mortgages are typically non-recourse loans, which means the lender assumes the risk of the market at the time of sale. If the house sells for less than what your loved one owed on the reverse mortgage, the lender will not expect you to make up the difference. Selling the house in this way allows you to completely pay off the reverse mortgage without taking from the deceased homeowner’s other assets.
Sign a Deed in Lieu of Foreclosure
If you do not want to go through the trouble of selling the home, you can ask the lender about signing a deed in lieu of foreclosure. This would allow the lender to accept a deed to the property, at which time they can sell the house and pay off the loan.
This process avoids foreclosure, saving the lender time and hassle as well.
Allow the Lender To Foreclose the House
Finally, you can decide to do nothing and allow the lender to foreclose the house. The lender will take the title of the home and sell it to complete the mortgage repayment. This is a lengthy process, and while it may sound simpler than seeking a deed in lieu of foreclosure, it may take just as much time and energy on your part.
Seek Financial Assistance Through Rockpoint Probate Funding
Does a reverse mortgage go through probate? Yes, it is one of many debts you may encounter during your loved one’s estate settlement process. If you are struggling financially while you await your eventual inheritance, a probate advance can help.
Rockpoint Probate Funding offers fast, non-recourse probate advances through an easy online application. Contact us today at 888-263-8588 to claim your funds, then learn more about inheriting a house through probate.
