A reverse mortgage is a specific type of financial tool that allows persons aged 62 or older to convert home equity into a cash payout. The homeowner may elect to receive their payment in a lump sum, monthly payments or through a credit line. Reverse mortgages for senior citizens are often considered beneficial, as the person does not need to make monthly payments on the loan. Instead, the person must pay back the reverse mortgage loan with interest upon their death, or if they move or sell the home.
It is possible for a reverse mortgage loan to go into default, even if the borrower isn’t required to make monthly payments on the reverse mortgage loan. This can happen if the borrower fails to pay property expenses to keep the property current. The most common example of this is where the homeowner fails to pay property taxes. This can cause the mortgage to go into default, which in turn puts the owner at risk of a foreclosure claim being filed against them.
Another way that a reverse mortgage default can occur is if the person fails to pay homeowner’s insurance. This is another common issue, especially among elderly persons who are not able to properly manage their property accounts.
Lastly, a reverse mortgage default can happen unexpectedly if the home is listed in the name of only one spouse, and that spouse dies unexpectedly. This can place the surviving spouse in a difficult situation with regards to the loan repayment.
As mentioned, the main concern with reverse mortgage defaults is the risk of foreclosure. In addition, a reverse mortgage default is also likely to be reported to the person’s creditors. This can have negative effects on the person’s credit scores and their ability to borrow more money in the future.
An immediate effect of reverse mortgage default is that the lender will typically cease issuing the monthly payments to the senior citizen borrower. Again, this can cause financial problems, especially if the person or couple has become dependent on the monthly payouts.
Lastly, having a reverse mortgage in default status can affect the title of the home. It may be considered a “cloud” or defect on the title, which may prevent or limit the home from being sold in the real estate market.
Legal issues involving reverse mortgage defaults generally require the assistance of a lawyer. Like any loan, a reverse mortgage can be a complicated mechanism, and may be difficult to understand in practice. You may wish to hire a real estate lawyer if you need assistance with real estate issues such as reverse mortgage defaults. Your attorney can provide you with legal assistance, advice, and guidance on the matters. Also, they can help represent you in court if you will be involved in a lawsuit.