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When You Can Foreclose on a Reverse Mortgage

Posted on in Mortgage Foreclosure

When You Can Foreclose on a Reverse MortgageOlder homeowners can use a reverse mortgage as a source of income or credit. While borrowers qualify for regular mortgages based on their income, a reverse mortgage is based on the borrower’s equity in their home. People age 62 and older are eligible to take out a reverse mortgage on their principal residence as long as they own it outright or have enough equity in it. The mortgage balance is not due until a qualifying event occurs. If the borrower or their heirs do not repay the mortgage, the lender may foreclose on the property.

When Can a Reverse Mortgage Become Due?

According to Illinois’ Reverse Mortgage Act, there are five ways that the balance on a reverse mortgage can become due:

  • The borrower or last remaining tenant dies;
  • The property is sold;
  • The borrowers no longer use the property as their principal residence;
  • The reverse mortgage contract included a maturity date; or
  • The borrowers failed to meet their contractual obligation to maintain the home.

When the borrowers die, their heirs will determine whether to repay the reverse mortgage, sell the home or allow a foreclosure. The borrowers may leave or sell the home if it does not meet their needs in old age. However, a lender may foreclose on a borrower’s home while the borrower still lives there if the borrower cannot pay property taxes and home insurance or maintain the value of the property. Unlike with other foreclosures, lenders often cannot seek deficiency judgments against borrowers of reverse mortgages if the property sells for less than the balance of the mortgage.

Foreclosure Response

The idea of lenders forcing senior citizens out of their homes is jarring to the public. The Federal Housing Administration insures most reverse mortgages and changed the rules of its Home Equity Conversion Mortgage program to try to reduce the number of reverse mortgage foreclosures:

  • Borrowers must pass a financial risk assessment that determines whether they are likely to be able to afford taxes and insurance on the home; and
  • Lenders can offer a Lifetime Expectancy Set-Aside, which uses a portion of the borrowed money to pay for property expenses.

LESAs have helped reduce the number of reverse mortgage foreclosures, but the money set aside may not be enough if a borrower greatly exceeds their life expectancy.

Contact a Chicago Debt Collection Attorney

All reverse mortgages eventually reach the point where they are due for repayment. A Chicago debt collection lawyer at Walinski & Associates, P.C., can help you decide how you will recover the balance on the mortgage from the borrowers or their heirs. Schedule a consultation by calling 312-704-0771.

Source:

http://www.ilga.gov/legislation/ilcs/ilcs3.asp?ActID=3656&ChapterID=62

Illinois Creditors Bar Association Chicago Bar Association Illinois State Bar Association
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