Who Owns the House in a Reverse Mortgage?
Clarify ownership in a reverse mortgage. Homeowners keep the deed and title, while the lender holds a lien on the property.
A reverse mortgage is a specialized loan product allowing homeowners, typically those aged 62 or older, to convert a portion of their home equity into cash. Unlike a traditional mortgage that requires monthly payments, a reverse mortgage generally does not require repayment until a specific event occurs, such as the borrower moving out or passing away. Obtaining a reverse mortgage does not mean the homeowner surrenders ownership of their property.
Homeowner Retains Title
Homeowners who obtain a reverse mortgage maintain full ownership of their home, including the deed and title. This means the individual retains all rights and responsibilities associated with homeownership, similar to a traditional mortgage. They have the right to live in the home for as long as they meet the loan terms, make improvements, or even sell the property.
This continued ownership carries ongoing obligations for the homeowner. Borrowers remain responsible for paying property taxes, maintaining homeowners insurance, and keeping the home in good repair. Failure to meet these financial and maintenance requirements can lead to the loan becoming due and potentially result in foreclosure.
Lender’s Interest and Rights
While the homeowner retains title, the lender in a reverse mortgage holds a security interest in the property in the form of a lien. This lien is a claim against the property, similar to that held by a lender in a traditional mortgage, ensuring the loan will be repaid. A lien provides the lender with the right to recover the loan amount from the home’s value when the loan becomes due.
This security interest means the lender does not own the home, nor do they have an ownership stake in the property. Their rights are limited to recovering the loan balance, including accrued interest and fees, from the home’s equity. If the terms of the loan agreement are not met, such as failing to pay property taxes or insurance, the lender may initiate foreclosure proceedings to protect their financial interest.
Impact of Loan Maturity on Ownership
A reverse mortgage loan becomes due and payable upon specific maturity events. Common triggers include the borrower’s death, the sale of the home, or the borrower permanently moving out of the property.
When a maturity event occurs, the loan balance becomes repayable. However, this does not mean the home’s ownership automatically transfers to the lender. The property still belongs to the homeowner or their estate; it is the loan that requires settlement.
What Happens for Heirs
Upon the death of the last borrower, the heirs inherit the property, not the reverse mortgage debt itself. The inherited property remains subject to the reverse mortgage lien, meaning the loan must be satisfied. Heirs have several options to address the outstanding balance.
They can choose to repay the loan to retain ownership of the property. Alternatively, heirs can sell the home, using the proceeds from the sale to pay off the reverse mortgage. Any remaining equity after the loan is satisfied belongs to the heirs. Most reverse mortgages are non-recourse. This means heirs are not personally responsible for the debt if the loan balance exceeds the home’s value. If the home’s value is less than the amount owed, heirs are not required to cover the shortfall and can allow the lender to foreclose without personal liability.