Reverse Mortgage Estate Implications: Property Rights
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One of the biggest questions that the average person interested in reverse mortgages tends to ask is what happens to their property after they pass away or move. Now, because this is one of the biggest concepts to understand in regards to reverse mortgage loans, it is really important that you understand completely and exactly what your rights are as well as the rights of your heirs when it comes to property in your estate.

Estate Responsibility

When a person passes away, it is their estate that is responsible for the settling of debts as well as the liquidation of any remaining assets that were not inherited upon the person’s passing. Therefore, taking that concept and expanding it a little bit to include reverse mortgage loans leads us to the conclusion that the estate is also going to be responsible for settling the reverse mortgage debt in the event that the person passes away.

Regardless of whether the person simply moves to another residence or whether they pass away, the debt created by the principal of the reverse mortgage loan, the interest charged by the reverse mortgage lender, and any fees that might have been incidental to the contract, must all be paid back when the house is vacated by the last person named in writing in the reverse mortgage contract. This is usually going to be accomplished by the liquidation of the property. The liquidation value of the property will then be used to pay back the reverse mortgage debt and any liquid value remaining after that will either belong to the surviving homeowner or to their heirs if they have passed away.

Estate Option

While the typical method for settling a reverse mortgage debt is to convert the home equity into a liquid asset that can then be used to settle the debt, it is not set in stone that this has to be the case. There are many cases where the potential heirs to a person do not have the money to support their parents and therefore advise them to take out a reverse mortgage to make their life easier, but then end up paying the debt off out of their own funds in order to keep the property.

Later on down the road when the parents pass away, it is the choice of the estate (and therefore primarily the decision of the executor of that estate) as to whether they will liquidate the house in order to pay the loan, or alternatively keep the house and pay the loan out of their own pocket.

Liability

The above paragraph might seem a bit confusing, but it basically just means that it will be the choice of the heirs as to whether they want to sell the house to pay the debt; it is not set in stone that they have to do so. That being said, it is impossible for the borrower to borrow more money (including interest and fees) than the house is worth, so there is never going to be a worry of passing any debt on to your heirs. They will always be able to liquidate the house in order to pay off the debt and therefore there is no need for stress in regards to that particular point.

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