What happens when a person with a reverse mortgage dies?
A very poor old man, footsore and bent with years, threw down the heavy bundle of firewood under which he had been groaning, and with tears in his eyes exclaimed:
"Oh, hard luck! What pleasure have I ever known? Nothing but work all day- no money- no one to care for me. Alas! I'd sooner Death would take me away. "Behold, the grim King of Kings stood before him, dreadful and awe-inspiring, as he rested on his scythe. "Beg pardon, but did I receive a hurry call?" The old man turned all colors and trembling like a leaf, replied, "Please, sir, would you kindly help me to lift this bundle of sticks on to my shoulder?" (Aesop -The old man and death)
Death and its approach are usually viewed differently by the mortgagor and the mortgagee. For the mortgagor, the scenario depicted in the above excerpt may fully apply. They are emotionally attached to their homes and like any normal individual; do not look forward to that day when they have to bid it and the world goodbye.
Reverse mortgage and death
For the mortgagor, the situation may slightly be different. Reverse mortgages have a structure which ensures a zero credit situation. In fact, the major risk here centers on mortality/death situation, interest rate situation, and house property price factor.
The mortality rate situation will arise when the mortgagors’ life gets prolonged. As a result the loan repayment is also delayed and the loan outstanding goes on increasing with interest application.
Death is the most common way for the loan to come due, Pulsipher says. Usually, the loan is repaid from the proceeds of the sale of the house. The heirs have up to a year to repay the loan after the borrower's death. Meanwhile, the loan accrues interest.
Grim as it may seem, the mortgagors position upon the death of the mortgagee maybe that of satisfaction. Little wonder, many professional commentators on reverse mortgages and when person dies imagine that lenders in reverse mortgages are happy to lend to these who are truly “senior”.
Death and heirs
Indeed, the provision that such security is not automatically realized upon the death of the reverse mortgagee is sure proof that the mortgagor is well catered for. The home of the mortgagor may revert to his/her heirs upon their death. However, this is only possible if they are able to pay up the loan advanced to the mortgagor.
One may therefore note that as much as this instrument is depicted as a tool of disinheriting heirs, it may actually assist them take care of their elders and still get back the property without having to personally cough out the maintenance money.
But, like in all legal transactions, it is advisable to have an attorney or expert adviser read through the nifty gritty of your reverse mortgage loan application, and explain its consequences to you prior to signing it.
However, not everyone has a great experience with reverse mortgages after death. Lenders sometimes refuse to acknowledge the estate attorney's notification death and continue to impose monthly interest payments against the estate.