Surviving a Reverse Mortgage Foreclosure
Key Takeaways
- A Notice of Default is serious, but it is not an immediate eviction.
- You can cure the default by paying back the missed property taxes or insurance.
- HUD-approved counselors can help you negotiate repayment plans with the servicer.
Receiving a foreclosure notice from a reverse mortgage servicer is terrifying. For a senior living on a fixed income, it feels like an immediate eviction notice.
However, the foreclosure process is highly regulated by federal and state laws. If you act quickly, there are almost always avenues to save the home.
The Most Common Cause: Tax Default
95% of reverse mortgage foreclosures happen because the senior failed to pay their county property taxes or let their homeowners insurance lapse. The servicer paid the bill on their behalf (a Corporate Advance) and is now demanding repayment.
If you ignore the letters, the servicer will file a Notice of Default.
Step 1: Do Not Ignore the Mail
The worst thing you can do is throw the letters in the trash. The servicer does not want your house; they are a Wall Street administrative firm. They just want their money back.
Call the servicer immediately. Explain your situation. If you experienced a medical emergency that drained your checking account, tell them.
Step 2: Request a Repayment Plan
If you owe the servicer $3,000 for back taxes, they will not demand you pay it by Friday.
FHA guidelines encourage servicers to offer Repayment Plans. You can usually negotiate a plan to pay back the $3,000 over 12 to 24 months, adding a small amount to your normal monthly budget. As long as you make these repayment installments and stay current on your new tax bills, the foreclosure is halted.
Step 3: Seek Free Legal Help
If the servicer is aggressive and refuses to cooperate, immediately contact a HUD-approved housing counseling agency. These counselors have direct lines to the loss mitigation departments of major servicers and know exactly how to force them to adhere to FHA leniency guidelines.
If the situation escalates to a court filing, contact your local Legal Aid society. These organizations provide free attorneys to low-income seniors facing foreclosure and can often drag the legal process out for years, forcing the bank to the negotiating table.
The Final Option: Selling
If you truly cannot afford the taxes and cannot qualify for a repayment plan, you must beat the bank to the punch. List the home for sale with a realtor. You can sell the home, pay off the reverse mortgage balance, and keep the remaining equity to fund a move to an affordable apartment. If you let the bank foreclose, they will wipe out your equity entirely.