Do I Still Own My Home with a Reverse Mortgage—and Can I Lose It?

Yes, you still own it—with conditions

Taking out a reverse mortgage does not hand your home to the lender. Your name stays on the title, just as it would with a traditional mortgage. The lender records a lien against the property, which is its security for the loan, and the loan is repaid later, usually when the home is sold.

What changes is that the loan comes with conditions you must keep meeting for as long as it is open. Because there is usually no monthly loan payment, trouble with a reverse mortgage tends to come from something else: the borrower moving out, or falling behind on the costs of owning the home.

Which reverse mortgage you have matters

The rules in this article are those of the Home Equity Conversion Mortgage (HECM), the reverse mortgage insured by the Federal Housing Administration (FHA). Its requirements are set by federal regulation and are the same with every FHA-approved lender.

Proprietary reverse mortgages, including jumbo products for higher-value homes and reverse second mortgages that sit behind an existing first loan, are offered by private lenders and are not federally insured. They generally carry similar obligations around occupancy, taxes and insurance, but the exact terms are set by each lender and spelled out in the loan documents. If you have one of these, read your own loan agreement rather than relying on HECM rules.

What you must keep doing

For a HECM, your ongoing responsibilities are written into the mortgage. They include:

• Living in the home as your principal residence. At least one borrower must continue to live there.
• Paying property taxes, including any special assessments, on time.
• Keeping homeowners insurance in force, plus flood insurance if the property requires it.
• Paying homeowners association, condominium or similar fees and any ground rent.
• Keeping the property in good repair.
• Meeting the other terms of the mortgage, such as responding to occupancy certifications from the servicer.

Some HECM borrowers have a set-aside within the loan that pays taxes and insurance, either because the lender’s financial assessment required it or because the borrower chose it. That can make these costs easier to manage, but it reduces the cash otherwise available from the loan.

What can make the loan come due

Under HECM rules, the full balance can become due and payable in a few situations. The loan becomes due when the last borrower dies, subject to protections for an eligible non-borrowing spouse, or when every borrower sells or transfers their ownership. It can also become due, with HUD’s approval, if:

• The home is no longer the principal residence of any borrower, for reasons other than death.
• A borrower has been away from the home for more than 12 consecutive months because of physical or mental illness, and no other borrower lives there.
• Property taxes, insurance or other required property charges are not paid.
• Another obligation under the mortgage, such as keeping the home in good repair, is not met.

When a loan comes due, the servicer sends written notice and gives the borrower or family a set period to respond. Options can include repaying the loan, selling the home, or, in some situations, curing the problem. Foreclosure is the step that follows if the matter is not resolved.

A practical example

Hypothetical: a homeowner in her late seventies has a HECM and lives alone. One year, a large property tax bill goes unpaid while she is dealing with health issues. The servicer may pay the bill for her and add it to her loan balance, and if she cannot repay it, the servicer can ask HUD to declare the loan due. At that point, she can ask the servicer what loss mitigation options apply, such as a repayment plan where one is available, and bring in family or a housing counselor to help. Responding quickly keeps more options open. Ignoring the letters is what turns a solvable problem into a foreclosure.

The same thinking applies to a long hospital or care-facility stay. If no other borrower lives in the home, an absence of more than 12 consecutive months for health reasons can make the loan due. Planning for that possibility with family is part of deciding whether the loan fits.

Protecting yourself and your home

A few habits make a real difference. Budget for taxes, insurance and repairs as if they were a monthly bill. Open and answer every letter from your servicer, especially the annual occupancy certification. Keep a trusted family member or adviser informed so someone can step in if your health changes. If your spouse is not a borrower, find out before closing whether they qualify as an eligible non-borrowing spouse, because that affects whether they can stay in the home after you are gone.

If you receive a default notice, contact the servicer right away and consider speaking with a HUD-approved housing counselor. For ownership, estate or title questions, a California attorney is the right resource.

Questions? Talk with Jack Terrell

If you are weighing a reverse mortgage, or trying to understand the one you or a parent already has, Jack Terrell can walk through how it works and what it requires. Jack is a mortgage broker and loan originator with California Mortgage Advisors, Inc. in San Rafael and works with homeowners throughout California. A conversation is simply a chance to get your questions answered.

This article provides general information about real estate financing in California. It is not a loan offer, pre-approval, commitment to lend, or personalized legal, tax, or financial advice. Programs, availability, terms, and eligibility requirements vary by lender, property, and borrower and may change. Review the disclosures and loan documents applicable to your transaction and consult a qualified professional for tax, legal, or estate-planning guidance.
Jack Terrell, Mortgage Broker and Loan Originator | NMLS #103232 | CA DRE #00992181
California Mortgage Advisors, Inc. | NMLS #1825 | CA DRE #01170868
Licensed by the California Department of Real Estate.
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