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Can you Short Sale a Reverse Mortgage?

Tags: Reverse-Mortgage-Information, reverse-mortgage-short-sale

This is an interesting one. At the end of the day a reverse mortgage is still a mortgage, that cannot be voided. So if you need to move (permanently) and have a reverse mortgage then you need to know the value. If the home is undervalued against the outstanding mortgage then you will need to be more careful.

So the first step needs to be to contact a local reputable realtor. Try and establish a realistic value for the home if it can be sold, the realtor will normally provide comparable data of recent sales in the area. You should have the remaining balance of the mortgage including all fees, the lender will provide this if requested. If there is a shortfall then you will need to speak to the lender to consider the options. Some lenders are more flexible than others. Please note, as most mortgages are serious financial decisions there will be financial implications to the process.

If the lender does not want to play ball at all, then you would need to consider foreclosure just as with any other secured debt. This is obviously not ideal but if you leave the property without resolution then the lender will more than likely foreclose. A short sale may not have any impact on your credit score but a Deed of Foreclosure will. Again, this is a serious decision to consider.

Consider the borrower position. There is no real difference between a reverse mortgage and a traditional mortgage. If the home is now worth less that 50% of the value at appraisal, the outstanding charge is higher than the value! What can you do, it’s just the economy at play.

Now if you are in a Reverse Mortgage you do have an advantage. Even though the home has a considerable debt attached to it, it makes no difference to the home owner as they live in the home with no payments to make for life and when the borrower dies then the mortgage is non-recourse. So even if the borrower passes away or the home is sold or if they are forced to leave permanently then the mortgage can only realize the property value, any shortfall is nullified. The whole point of a reverse mortgage is that it should be the last loan a person ever needs.

If you decide you don’t want to live in the home and don’t repay the loan then you will be in default of the terms of the reverse mortgage agreement.

It is a tough decision to make especially if the house is under-water according to the market. It would certainly impair your credit which would make it difficult to obtain a loan again in the future and defaulting on a Federally regulated program would make you ineligible for future HUD programs. It would be prudent to check with the local realtor and lender before you take any action, and make sure that your move is permanent and essential.

It is our advice to NEVER default on any loan or mortgage, and that includes reverse mortgages or any other form of debt.