Navigating HUD Reverse Mortgage Foreclosure Guidelines and Laws

The Department of Housing and Urban Development (HUD) oversees the Home Equity Conversion Mortgage (HECM) program, which is the most common type of reverse mortgage.

To qualify for a HECM, borrowers must be at least 62 years old and occupy the property as their primary residence.

Borrowers must also meet financial and credit requirements, which are outlined in the HUD guidelines.

When you're considering a reverse mortgage, it's essential to understand the different loan types and repayment options available.

There are three main types of reverse mortgages: Home Equity Conversion Mortgage (HECM), Proprietary Reverse Mortgage, and Single-Purpose Reverse Mortgage.

A HECM is the most common type, insured by the Federal Housing Administration (FHA), and allows homeowners to borrow a lump sum, monthly payments, or a line of credit.

Proprietary reverse mortgages are offered by private companies and often have more stringent credit and income requirements than HECMs.

Single-Purpose Reverse Mortgages are designed to help homeowners with a specific need, such as paying property taxes or making home repairs.

A foreclosure can happen when a reverse mortgage becomes due and payable. This can occur when the borrower permanently moves out of the home.

The lender can accelerate the loan by calling it due in certain situations. These include the borrower selling the home or transferring title, the borrower's death, or the borrower not complying with the mortgage terms.

If the lender calls the loan due, the borrower or their heirs must repay the loan in full, give the property to the lender, or sell the property.

The lender will foreclose if the borrower doesn't meet these requirements. This can be avoided by staying current on property taxes, having homeowners' insurance, and keeping the home in a reasonable condition.

In some cases, the lender needs HUD's permission to accelerate the loan. This can happen when the borrower permanently moves out, moves out for longer than 12 months due to illness, or doesn't comply with the mortgage requirements.

If the loan becomes due and payable with HUD's permission, the lender can delay submitting a request to call the loan due for up to six months. This can postpone a foreclosure for that time.

An additional six-month extension might be available with HUD approval, depending on the circumstances.

A reverse mortgage foreclosure can be delayed in certain circumstances, such as when the borrower permanently moves out, moves out for longer than 12 consecutive months due to physical or mental illness, or fails to comply with the mortgage requirements.

The lender needs HUD's permission to accelerate the loan in these situations.

The loan becomes automatically due and payable upon the borrower's death or if the borrower sells or transfers the property.

There are three key scenarios that can trigger a foreclosure on a reverse mortgage: the borrower's death, unpaid property taxes and insurance, and the owner moving out and no longer making the property their primary residence.

Here are the specific scenarios that can trigger a foreclosure:

Not paying property taxes or homeowners' insurance, or letting the property fall into disrepair, constitutes a violation of the mortgage, and the lender can call the loan due.

The lender usually allows the borrower to cure the default to prevent or stop a foreclosure.

HUD reverse mortgage foreclosure guidelines are governed by Title 24, Vol.2, Section 206-125. This means that properties sold under these guidelines are subject to specific rules and regulations.

The lender can accelerate the loan (call it due) when one of several events occurs, including the borrower permanently moving out of the home or failing to comply with the terms of the mortgage.

A HECM reverse mortgage loan becomes due and payable when one of the following circumstances occurs: the borrower permanently moves out of the home, the borrower temporarily moves out of the home because of a physical or mental illness and is gone for over 12 consecutive months, the borrower sells the home or transfers title (ownership) of the home to someone else, the borrower dies, and the property isn't the principal residence of at least one surviving borrower.

The lender can seek a personal judgment against the borrower or the borrower's estate to recover the deficiency after a foreclosure, but this isn't allowed with HECMs.

These properties can often be great deals, with the homes being often well cared for as they've had a single owner for quite a while. Being a HUD 24 CFR 206.125 property means a complicated sales process and less potential competition from other buyers.

The lender can accelerate a HECM loan and call it due when a borrower permanently moves out of the home. This can have serious consequences for the borrower.

If the lender calls the loan due, the borrower or their heirs must repay the loan in full or give the property to the lender. Alternatively, they can sell the property for the full amount owed on the loan.

If a borrower temporarily moves out of the home due to a physical or mental illness and is gone for over 12 consecutive months, the lender can also accelerate the loan. This is another situation where the borrower must take action to avoid foreclosure.

A borrower who sells the home or transfers title to someone else can also trigger an accelerated loan. The same is true if the borrower dies and the property isn't the principal residence of at least one surviving borrower.

The lender can also accelerate the loan if the borrower doesn't comply with the terms of the mortgage, such as failing to stay current on property taxes or not having homeowners' insurance on the property.

Here are some possible outcomes if the lender calls the loan due: