Are you curious how a reverse mortgage is handled in probate? Do you know what a reverse mortgage is? Reverse mortgages are like traditional mortgages. If the homeowner dies, the reverse mortgage becomes due and payable in full. As a result, the estate beneficiaries must act promptly to pay off the loan amount to prevent the bank foreclosing on the property. Read on to learn more about how to handle a reverse mortgage and probate and, more importantly, how A People’s Choice can help you.

Reverse Mortgage Overview

A reverse mortgage is a loan available to homeowners 62-years or older. A reverse mortgage allows homeowners to convert equity in their home into cash. Simply speaking, a reverse mortgage allows a homeowner to take a loan out against the equity they have in their home. Instead of a homeowner making monthly payments to the lender for the loan, the lender makes payments to the homeowner (the borrower) based on the financed equity amount. Consequently, a reverse mortgage provides the property owner an added source of income. The property owner is still responsible for property taxes, homeowner insurance, and homeowner association fees. A reverse mortgage is often a great way for an older homeowner to enjoy a better lifestyle during their later years in life.

“I found myself having to probate an estate where the decedent had a reverse mortgage. The house still had some equity but the bank was taking aggressive action to foreclose on the property.” H.Abramova
Once the property was transferred to me, I was able to refinance the reverse mortgage and save the property from being foreclosed on. I could not have done it without the help of A People’s Choice.” H.Abramova
“A People’s Choice helped me file a probate and get court authorization to deal with the bank. As sole beneficiary, A People’s Choice helped me transfer the property to myself during the probate proceeding.” H.Abramova

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Reverse Mortgage and Probate

So how do you handle a reverse mortgage and probate? First, be aware that when property is encumbered by a reverse mortgage and probate is filed, it may take longer for beneficiaries to receive the property proceeds. Furthermore, death of the deceased triggers the loan payoff of a reverse mortgage. The estate’s legal representative is responsible for making arrangements to pay the reverse mortgage and probate the estate. Once the reverse mortgage is paid in full, any remaining equity in the home can be transferred to beneficiaries. It should be noted, however, that no debt from the reverse mortgage will be passed to the estate beneficiaries or heirs.

After the death of a homeowner with a reverse mortgage, the estate representative only has a short amount of time to contact the lender. Most lenders will begin foreclosure proceedings soon after the homeowner has died. In most situations, if a probate has been filed and the bank is being cooperative, the estate representative may have 3-6 months to sell or refinance the property. Keep in mind that until the loan is paid, interest on the loan will continue to add to the loan balance. This will continue to reduce the amount of equity in the home.

Cheryl and Lisa’s mother passed away. Their mother, Eve, owned a home worth $400,000. Eve took out a reverse mortgage and received $100,000 in payments. She owed $120,000 on the reverse mortgage when she died. Eve had executed a will naming Cheryl and Lisa as beneficiaries of her home who were now faced with handling the reverse mortgage and probate proceedings. Cheryl and Lisa have basically two options. First, Cheryl and Lisa can sell the home and take the proceeds to pay the $120,000 loan balance. The net proceeds after sale would be equally split. Alternatively, as part of the California probate process they can transfer the home to themselves as co-owners. This would allow them to refinance the home to pay off the reverse mortgage before filing the Petition for Final Distribution.

If you are faced with a reverse mortgage and probate, don’t delay taking action! A People’s Choice can help you probate your loved one’s estate, even if there is a reverse mortgage on real property. Contact A People’s Choice for more information about our low-cost California probate services. Using our non-attorney probate services will save you thousands of dollars as compared to statutory fees charged by California attorneys. Call 800-747-2780 today!

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