Key Takeaways
- You can get a reverse mortgage without a will, but it guarantees a nightmare for your heirs.
- Without a will, the home goes into probate, heavily delaying the repayment process.
- Delays often result in the lender foreclosing on the home before the heirs can sell it.
\n\nTechnically, a lender does not require you to have a Last Will and Testament to approve a reverse mortgage. However, taking out a reverse mortgage without having your estate planning in order is a recipe for absolute disaster when you pass away.
The Post-Death Timeline
When the last surviving borrower on a reverse mortgage passes away, the loan immediately becomes "Due and Payable."
The lender will send a letter to the estate giving the heirs six months to either: 1. Pay off the loan balance (usually by refinancing). 2. Sell the house, pay off the loan, and keep the remaining equity.
Six months sounds like a long time to sell a house, but this is where the lack of a will destroys families.
The Probate Nightmare
If you die without a will (known as dying intestate), you have not legally designated who owns the house or who has the authority to sell it.
Your children cannot simply hire a realtor and put the house on the market. They must hire a probate attorney and petition the local court to appoint an executor of the estate. Depending on the state, the probate process can take anywhere from six months to two years.
Here is the problem: The reverse mortgage lender does not care that your family is stuck in probate court. The clock is ticking.
While the family spends nine months arguing in court over who gets to be the executor, the six-month deadline passes. The lender files a Notice of Default and forecloses on the property. The house is sold at a public auction, often for significantly less than market value, vaporizing the family's inheritance.
The Solution: A Living Trust or TOD Deed
If you have a reverse mortgage, you must ensure that ownership of the home transfers to your children instantly upon your death, bypassing probate entirely.
You can achieve this by placing the home in a Revocable Living Trust (which is perfectly acceptable to reverse mortgage lenders) or by filing a Transfer on Death (TOD) Deed with the county, if your state allows it.
Do not sign a reverse mortgage contract without first spending a few hundred dollars on a basic estate plan.\n