Regulations & Laws
HUD HECM FHA insured Reverse Mortgage Loans: There are very few regulatory rights and consumer protections. HUD has no structure or system is place to audit, regulate or enforce the very few rights and protections that exist for consumers. HUD regulations and Mortgagee Letters are vague and left up to the Servicer to interpret and implement. Every Servicer has a different process for handling the servicing your reverse mortgage.
24 CFR 206.125 gives the consumer the right to time and repayment of the loan when it is called "due and payable".
DUE AND PAYABLE STATUS: The death of the Borrower creates an automatic default. The time clock starts ticking from the date of death for the consumer to exercise their rights. The Servicer will send a "due and payable" letter to the borrower's estate (and all known heirs) generally within a few days to a month following the death of the Borrower. The consumer is required to respond with their intentions for the property within 30 days from the date of the letter.
TIME TO REPAY THE LOAN: Most Borrowers were told their family would have a year to purchase or sell the property. Here is what HUD says: "Effective May 22, 2013, HUD allows mortgagees servicing HECM loans a 90-day extension to take the first public legal action to initiate foreclosure as required by 24 CFR 206.125(d), following expiration of the six month period during which the mortgagor or mortgagor’s estate attempts to sell the property." I read this to say the Servicer does not have to take the first legal action to initiate foreclosure until 90 days from the death of the borrower.
REPAYMENT: HUD’s regulations at 24 CFR 206.125(c) state, in part, “[i]f the mortgage is due and payable "The borrower may sell the property for at least the lesser of the mortgage balance or five percent under the appraised value” (i.e., 95% of the appraised value of the mortgaged property)." HUD interprets the word “sale” to include any post-death conveyance of the mortgage property (even by operation of law) to the borrower’s estate or heirs (including a surviving spouse who is not obligated on the HECM note)."
Most Servicers are not allowing the consumer either the time or repayment of the loan. Foreclosure is accelerated as soon as 30 to 60 days after the death of the Borrower.
PROPRIETARY OR JUMBO Reverse Mortgage Loans (not FHA Insured)
This type of reverse mortgage is a huge risk for the consumer. While HECM Loans are FHA
insured loans that have very few consumer rights and protections Proprietary or Jumbo loans have none. If you have a problem with the Servicer you have no recourse.
These loans are generally made to property with a value greater than the maximum claim amount of a HECM loan ($636,500.00), where the property value is above $800,000 and the Borrower wishes to access more of the equity. Example: A property value of $2 Million where the borrower may be able to access up to 40% of the equity.