Below is the text version of the document:What the Family Should Know Due and Payable Status ​ Borrowers can voluntarily sell their home and pay off their reverse loan at any time—just like any mortgage. ​ However, with reverse loans there are certain instances (called Maturity Events) that trigger the loan to become Due and Payable (DAP):

  • The death of all borrowers (DAP occurs upon the death of the last borrower) ​
  • Non-Occupancy of all borrowers (DAP occurs when the last borrower has permanently left the home) ​
  • Failure to pay property taxes or homeowner’s insurance on time ​
  • Failure to maintain the property or complete repair set-aside items from loan origination ​
  • Conveyance of title to heirs (where all borrowers are removed from title) ​

Borrower/Family Options

Once the loan becomes Due and Payable (DAP) there are four potential options or outcomes:

  • Repay the loan and keep the house ​
  • Sell the house and repay the balance ​
    • Borrowers/estate keep remaining proceeds if loan balance is lower than the home’s value ​
    • Borrowers/estate only pay market value of home if loan balance is higher than home’s value (non-recourse feature) ​
  • Deed the home to the lender if the loan balance exceeds the home’s value and the heirs do not want to purchase the home or sell the home ​
  • Heirs can buy the home for the lesser of the loan balance or 95% of market value ​
    • Only available in the event of death of borrowers ​
    • There must be a Post Death Transference ​

The Critical Step ​ It’s imperative that heirs notify the Servicer/Lender as soon as possible after the last borrower’s death. ​ There is a limited amount of time to settle the loan and there are deadlines that must be met. ​ Most are triggered by the date of death (not the date of notification). ​ Communication with the Servicer is key with reverse mortgages:

  • They want to work with the heirs/family to satisfy the loan ​
  • Lack of communication CAN and will lead to default and trigger the start of foreclosure proceedings ​

What the Family Should Expect to Receive ​ Heirs will receive a Condolence/DAP letter within 30 days of notification of death/default. ​ At this point, the heirs must choose from two options to move forward:

  • Pay the loan balance in full within 30 days ​
  • Put their intentions with the property in writing by completing the Letter of Intent form sent with the DAP letter and returning it to the Servicer within 30 days ​
    • Six months (180 days) from date of the event (death) to complete whatever is on Letter of Intent ​
    • Possibility of two 90-day extensions if approved by HUD ​
    • While loans are in DAP status, external property inspections occur monthly (required by HUD to monitor the condition of the property) ​

Borrower Protections Extend Beyond Origination ​

  • Just as there are protections in place for the borrower during the loan origination stage, there are also protections in place for the borrower once the loan becomes Due and Payable (DAP). ​
  • Because the loan is still accruing interest, Servicers must follow a very strict timeline for handling the settlement of the loan after it reaches DAP status. ​
  • They will issue the DAP letter immediately upon notification of death. ​
  • They have very strict timelines from the date they issue the DAP Letter to report the intent with the property to HUD ​
    • If they receive no response from the family then they are legally required to start foreclosure proceedings ​

Helpful Tips and Takeaways ​

  • Have borrowers consider designating someone on the Authorization to Communicate form (in the loan application packages) ​
    • Best option is whomever they have designated to handle their estate ​
    • Can be added after loan has closed and is in Servicing ​
    • Advise borrowers to have whomever they’ve designated to handle their estate to reach out to the Servicer as soon as possible after the death of the last borrower ​
  • Do not advise borrowers to add their children or others to title after the loan closes* ​

Contact Information

Mike Beal
Liberty National Lending Group ​
3914 Murphy Canyon Rd #129 ​
San Diego, CA 92123 ​
Cell. (619) 218-4706 ​
Mikeb@libertynatl.com ​