Who Owns the House in a Reverse Mortgage: What You Need to Know

A reverse mortgage can be a complex and often misunderstood financial tool, but at its core, it's a loan that allows homeowners to borrow money using the equity in their home as collateral. The borrower, typically a homeowner aged 62 or older, receives a lump sum, monthly payments, or a line of credit.

The loan amount is based on the home's value and the borrower's age, with older borrowers eligible for larger loans. For example, if a 70-year-old homeowner has a home worth $200,000, they may be eligible for a loan of up to $150,000.

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In a reverse mortgage, the homeowner retains ownership of the house throughout the term of the loan. This means the lender does not own the property, but rather places a lien on it to guarantee repayment.

The lien is used as collateral for the loan, and it's typically repaid when one of the following situations occurs: the homeowner has been absent from the property for more than 12 consecutive months, the homeowner sells the home, or the homeowner passes away.

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As long as the homeowner maintains the property, pays property taxes, and keeps up with homeowners' insurance, they can live in the home for as long as they wish. This freedom is a fundamental principle of reverse mortgages, allowing individuals to age in place with dignity and financial security.

Here are the common scenarios that trigger repayment of a reverse mortgage:

After the borrower passes away, the home passes on to the next person as in any other situation. If someone else is listed on the home title, they retain ownership of the home.

The heirs may receive the home automatically or it may need to go through probate court. The reverse mortgage is now due, and whoever owns the home can pay off the remaining loan balance or 95% of the home's value, whichever is less. This means even if the reverse mortgage balance exceeds the home value, heirs will never pay more than that. They can choose to take out a mortgage at this time to pay off the reverse mortgage lender.

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If the borrower is still alive and living in the home, a home equity conversion mortgage (HECM) requires one-on-one financial counseling to understand rights and responsibilities.

This counseling helps protect the borrower's loved ones, and it's a crucial step in the process. The borrower has the option to list their spouse as a co-borrower on the loan or declare them as a "non-borrowing spouse."

A non-borrowing spouse is eligible to stay in the home after the borrower passes on or moves out, without worrying about repaying the loan balance. This is the case for HECMs originated after August 4, 2014.

To qualify as a non-borrowing spouse, you need to meet certain criteria, which are:

If heirs don't want to sell the home or pay off the reverse mortgage, they can choose to transfer the home's title to the lender through a deed in lieu of foreclosure. This option is a simple transfer where the lender gets the title to the home and the remaining reverse mortgage is satisfied.

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The heirs won't have to deal with the hassle of selling the home, especially during a difficult time like funeral arrangements. However, if the heirs own the home's title, they may still be responsible for paying property taxes and homeowners' insurance.

A deed in lieu of foreclosure is a viable option when heirs can't pay off the reverse mortgage balance or don't want to sell the home. This way, the lender gets the title to the home and the remaining debt is satisfied.

The home title and the reverse mortgage balance are separate things, so the heirs may own the home's title but still have a reverse mortgage attached to it. This can be a complex situation, but understanding the options can help heirs make informed decisions.

Here are the possible scenarios when heirs transfer the home title:

In a reverse mortgage, homeowners retain ownership of their houses throughout the term of the loan. This is a fundamental principle of reverse mortgages, setting them apart from traditional mortgages.

The lender does not own the property, but instead places a lien on it, using the home as collateral for the loan. This lien guarantees that the lender will be repaid when the loan reaches its maturity.

Homeowners can live in the home for as long as they wish, as long as they maintain the property, pay property taxes, and keep up with homeowners' insurance. This financial flexibility empowers homeowners, particularly retirees and seniors, to age in place with dignity and financial security.

Here are the situations in which the lender will be repaid:

A reverse mortgage is often referred to as a non-recourse loan, meaning the lender can't ask for other assets if the property's value decreases.

If you're unable to pay back the loan because the property value drops, the lender can only take the property itself, not your other assets.

In a non-recourse loan, the property serves as collateral only in the event of default, not for making up the difference in cost if the property value drops.

This protection is a significant benefit of reverse mortgages, giving you peace of mind that you won't lose more than your home if the market value declines.

Under a non-recourse agreement, the lender can only take possession of the property, not your other assets or savings.

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As a homeowner considering a reverse mortgage, it's essential to understand what happens when the loan matures.

If you pass away or leave the home, the loan comes due and has to be repaid.

The lender will take possession of the home if the loan isn't repaid, giving them the right to assume the title to the home used to finance the reverse mortgage.

A surviving spouse has rights and protections when it comes to a reverse mortgage. They cannot be forced out of the home to satisfy the loan when the other spouse passes away.

The surviving spouse can qualify for a deferral, allowing them to stay in the home without immediately having to pay off the loan balance. To be eligible, they must meet certain criteria, including living in the home, owning the title, or being able to get it within 90 days, and being married to the borrower when the loan was taken out.

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The law now protects the surviving spouse from being forced out of the home, and they may also have rights if they are not named on the loan. However, this may require legal representation and a good attorney to protect their rights.

Here are the key criteria for a surviving spouse to qualify for a deferral:

If you're a surviving spouse, you have options to consider when it comes to staying in the home. You can stay in the home without worrying about repaying the loan balance.

The law now protects you from being forced out of the home to satisfy a loan when your spouse passes away. You'll still need to keep up with property taxes and maintenance, but that's a manageable task.

In some cases, a non-party spouse may also have rights, but this can be more complicated and may require legal representation. It's essential to understand your rights and responsibilities.

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To qualify for a deferral as a non-borrowing spouse, you must meet specific criteria: you must be currently living in the home, own the title to the home or be able to get it within 90 days, be married to the borrower when they took out the reverse mortgage, and be identified in the loan documents.

Here are the key requirements for a non-borrowing spouse:

Retaining ownership is a fundamental feature of reverse mortgages. Homeowners retain ownership of their houses throughout the term of the loan.

The lender does not own the property, but instead places a lien on it, using the home as collateral for the loan. This lien guarantees that the lender will be repaid when the loan reaches its maturity.

To clarify, here are the situations in which the lender can take ownership of the property: the homeowner has been absent from the property for more than 12 consecutive months, the homeowner sells the home, or the homeowner passes away.

As long as the homeowner maintains the property, pays property taxes, and keeps up with homeowners' insurance, they can live in the home for as long as they wish.

If the borrower is no longer living in the home, it immediately becomes due—unless an eligible non-borrowing spouse still lives there. In this case, the spouse could qualify for a deferral, so while the balance would still be due eventually, they'd get to keep living there.

To be an eligible non-borrowing spouse, you need to meet these criteria: