LEGAL FORECLOSURE VS. WRONGFUL FORECLOSURE
Let me define "Legal Foreclosure" - it is when a maturity event has occurred such as the death of the borrower. AND, the Servicer has (1) informed the consumer of their rights and options (2)
worked with the consumer to exercise their rights and options (3) together with the consumer determine the consumer is unable to exercise any option to avoid foreclosure (such as selling or purchasing the property).
"Wrongful Foreclosure" is more common and happens in many ways. See the list of Servicer Violations on the Servicing page. Basically, if the Servicer refuses to let you exercise your rights, violates your rights, fails to inform you of programs available to correct the default, or makes a false assertion such as the Borrower doesn't occupy the property when they do, accelerates foreclosure - this constitutes a wrongful foreclosure.
Foreclosure is a very scary process. When the consumer doesn't understand the terms of the reverse mortgage to begin with or their rights and options they feel helpless to stop the foreclosure train.
There are 17 reasons a Servicer can foreclose. The number 1 reason is the death of the borrower, followed by failure to pay property taxes, insurance or HOA fees, Non-Occupancy, or failure to maintain the property. These are some of the legal reasons a Servicer can foreclose if they are true. Example: You moved to a long term care facility and don't occupy the property as your primary residence for 12 consecutive months. The lender has the right to foreclose but must first contact you or your representative to tell you your rights and options to avoid foreclosure.
Here are your basic rights when a loan is called due and payable due to the death of the borrower: Per 24 CFR 206.125 the heir has the right to repay the loan through sale or purchase of the property for 95% of the current appraised value or payoff of the loan balance whichever is less. You can have an initial 6 months grace period with the submission of a will (probated or un-probated, a Trust, court order, affidavit of heirship. You are entitled to 2 90 day extensions if you show you have legal authority, and either loan preapproval or a listing agreement. Meeting these requirements provides 1 year from the death of the borrower to satisfy the loan. The Servicer is required to do a full (interior/exterior) HUD appraisal to determine the 95% value. The Servicer bills HUD for the appraisal and is reimbursed. The Servicer cannot charge you for
exterior only (drive by appraisal) or the 1st required HUD appraisal. Appraisals are good for 120 day.
Regarding a Deed in Lieu of foreclosure. This is only a good idea if the borrower is still living and/or the heir has legal authority to convey title. If there is any cost involved to probate or get legal authority there is no point. Just let the Servicer foreclose. If it's in foreclosure you can stop paying taxes, insurance and other property charges if the property is going to be vacant. Any questions please ask for more information.
No matter what the reason for foreclosure you as the consumer have rights and options. The Servicer should advise you of your rights and options but usually doesn't. Most consumers will get a "due and payable" that says the entire loan balance is due and must be paid within 30 days or the lender will foreclose.
NEWS UPDATE: Foreclosure moratorium extended for hurricane impacted victims - Harvey extended to February 21, 2018, Irma March 9, 2018, Maria to March 19, 2017. Call your lender to make sure they apply for the extension to HUD/FHA. With the extension the lender cannot start or complete any foreclosure action. Tip: If you are in the affected area you will want to get a new appraisal.