Appraisal Management News

Onward with Reverse: Avoiding reverse mortgage foreclosure

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The Herald Review

On any regular purchase or refinance mortgage, the main reason people get foreclosed on is they get too far behind in their monthly payments. With a reverse mortgage there are no monthly payments. Therefore any possible foreclosure must occur for another reason.

The cause of most reverse mortgage foreclosures is non payment of property taxes. Taxes and homeowners insurance payments are paid by the home owner in a reverse mortgage. Usually in a regular mortgage, the taxes and insurance payments are included with the monthly mortgage payment. Now, you can have your reverse mortgage company pay them for you also, but they do it by holding back money you would receive at closing. You would need to specify the number of years you want them to pay it and that’s how much they would hold back.

If you start to get behind in your taxes, that triggers other things for your mortgage company to check, such as, do you really still live there? Has the house been satisfactorily maintained?

In the closing papers at the title company you will be asked to sign a document stating that you will maintain the home and live in it as your primary residence.

If the lender finds a reason to foreclose, the borrower has a right to be reinstated. This right applies even after foreclosure proceedings have been started. To reinstate, the borrower shall correct the condition which resulted in the requirement for foreclosure. Foreclosure costs would be added to the principal balance.

Other required signatures at closing are on documents stating: 1) You will not participate in a real estate tax deferral program. 2) You will not put any other liens (credit lines, 2nd mortgages, etc) on your property. 3) You will not change the property in any way that would reduce its value. 4) You will pay any governmental or municipal surcharges (i.e., sewer, water, or other city provided utility improvements).

Lastly, a borrower would be in default and foreclosure could result, if it was discovered that during the loan application process, false or inaccurate information was given.

Because the non payment of taxes and insurance is the most prevalent cause of foreclosure in reverse mortgages, HUD is now indicating it will require checking credit scores and income verification in the future to make sure people are credit worthy and have enough income to pay the required taxes and insurance. As of now, credit scores and income verification are not considered in a reverse mortgage. Therefore, I would suggest that if you are contemplating a reverse mortgage in the near future that you consider doing it now before these new regulations become effective.

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Written by appraisalmanagementnews

June 1, 2011 at 2:49 pm

Posted in Reverse Mortgage

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