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Dealing with reverse mortgages during estate administration

With the popularity of reverse mortgages within senior populations today, an increasing number of heirs are dealing with mortgage debt in the estate administration process. In many cases, a reverse mortgage comes due when the homeowner passes away, and this can be a shock for unprepared heirs.

Several things can be done to keep the stress and debt from hindering heirs. First, individuals who take out a reverse mortgage can also plan with a life insurance policy. The payout on the policy can be used to pay off the mortgage, leaving heirs in the clear. Second, homeowners can communicate their financial plans to heirs so there is an understanding that the reverse mortgage exists.

Heirs who find themselves in the estate administration process without previously knowing about the reverse mortgage should know they have options. They can pay off the mortgage to retain ownership and control of the home as established by estate documents. They can also refinance the mortgage to the same end.

If heirs can't pay off the reverse mortgage or refinance, they may have to give up the home. This is usually done through a sale process whereby the heirs work with a real estate agent to sell the home. Money made from the sale goes first toward paying off the mortgage. The estate keeps any leftover funds and they are distributed according to wills or other estate documents. Heirs are able to remove personal belongings and furnishings from the home.

If there is someone living in the home, such as a renter or other relative, they may be afforded some rights under the estate. Seeking legal advice about such situations can help heirs resolve the matter quickly and without potential legal problems.

Source: Mortgage Daily for Consumers, "Reverse Mortgages After Death of Homeowner," Marcie Geffner, July 06, 2015

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