Can I Stop a Reverse Mortgage Foreclosure?

Legal Update: The time to request the kind of delay discussed in the article below has expired. However, you can still ask your servicer for an extension of time before starting a foreclosure. Lenders sometimes give HECM borrowers or their estate time extensions to repay the reverse mortgage if the property is being marketed for sale or the estate is trying to to get financing to buy the property.

The COVID-19 pandemic resulted in extensive health and economic turmoil for millions of Americans, including older homeowners and others. If you have an FHA-insured reverse mortgage and are facing foreclosure, federal protections and policies can provide temporary relief, allowing you to stay in place.

You can ask your servicer to delay a foreclosure for up to six months, perhaps more in some cases. According to the FHA, the opportunity to request a delay expires May 31, 2023, and no delay period may extend beyond November 30, 2023.

How Does a Reverse Mortgage Work?

In a regular mortgage, the borrower gets a lump sum from a lender and makes monthly payments towards paying the debt back, plus interest. In a reverse mortgage, the borrower receives periodic payments or gets a line of credit upon which the borrower makes draws (or a combination of these options).

Unlike a regular mortgage, the total amount owed on a reverse mortgage gets bigger over time as the borrower receives payments, and interest and fees get added to the loan. The lender's payment to the borrower may also be in the form of a lump sum, subject to some limitations.

The Federal Housing Administration (FHA), part of HUD, insures most reverse-mortgage loans in the United States through its Home Equity Conversion Mortgage (HECM) program. Some private lending institutions have also developed proprietary reverse mortgages. These reverse mortgages are backed by the lender that offers them rather than FHA. (This article focuses on HECMs. If you have a proprietary reverse mortgage, call your lender to find out if any foreclosure relief options are available.)

When a Reverse Mortgage Can Be Foreclosed

With a HECM, the lender can accelerate the loan (call it due) when one of the following events happens.

• The borrower permanently moves out of the home.
• The borrower temporarily moves out of the home because of a physical or mental illness and is gone for over 12 consecutive months.
• The borrower sells the home or transfers title (ownership) of the home to someone else.
• The borrower dies, and the property isn't the principal residence of at least one surviving borrower. (A nonborrowing spouse might be able to stay in the property even after the borrower has died if specific criteria are met. Talk to a lawyer or HUD-approved housing counselor to learn more.)
• The borrower doesn't comply with the terms of the mortgage, like failing to stay current on property taxes, not having homeowners' insurance on the property, or neglecting to keep the home in a reasonable condition.

If the lender calls the loan due, the borrower or the borrower's heirs must repay the loan in full (or pay 95% of the current appraised value of the property, whichever is less), give the property to the lender in a deed in lieu of foreclosure, or sell the property for the full amount owed on the loan (or an amount that's at least 95% of the current appraised value of the property, whichever is less).

Otherwise, the lender will foreclose.

Delaying a Reverse Mortgage Foreclosure

In some circumstances, the lender has to get HUD's permission to accelerate a reverse-mortgage loan, like when the borrower permanently moves out, moves out for longer than 12 consecutive months because of physical or mental illness, or doesn't comply with the requirements of the mortgage.

Other times, like upon the borrower's death or if the borrower sells or transfers the property, the loan becomes automatically due and payable.

Foreclosure Delays for Loans That Become Due and Payable with HUD's Permission

Mortgagee Letter 2020-06, official loan servicing guidance from HUD, instructs lenders to, upon a borrower's request, delay submitting a request to HUD to call a loan due and payable for up to six months, thus postponing a foreclosure for this time.

An additional extension of up to six months might be available with HUD approval depending on the circumstances.

Foreclosure Delays for Loans That Become Automatically Due and Payable

For loans that have become automatically due and payable, entered into a deferral period, or became due and payable with HUD approval, the lender must, upon the borrower's request, also delay foreclosure for up to six months.

If needed and depending on the circumstances, an additional period of up to six months might be approved by HUD.

You Might Qualify for an Additional Delay

On September 27, 2021, HUD announced that:

• For HECMs that entered an initial delay period on or before June 30, 2020, up to two additional three-month delay periods are available after the initial 12-month delay expires.
• If the initial delay start date is July 1, 2020 to September 30, 2020, you can get a three-month delay extension after the initial two six-month periods.
• If the initial delay start date is October 1, 2020 to June 30, 2021, you can only get two six-month delay periods.
• You can get two six-month delays if you request a foreclosure delay from your mortgage servicer between July 1, 2021, and September 30, 2021.
• If you request an initial foreclosure delay from your mortgage servicer between October 1, 2021, and the end of the COVID-19 National Emergency (May 11, 2023), you can get an initial six-month delay and an additional six months if the delay is exhausted and expires before the end of the COVID-19 National Emergency.

The opportunity to request a delay expires May 31, 2023, and a delay period can't extend beyond November 30, 2023.

How to Get a Delay in Repaying Your Reverse Mortgage

So, you might be able to delay having to repay a reverse mortgage, and postpone a reverse-mortgage foreclosure. To get the delay, contact your loan servicer and ask it to hold off on calling the loan due and payable. You won't have to provide any supporting documentation to get the delay.

During the postponement, the servicer must forgo late charges, fees, and penalties, if any. Also, the term of either the initial or the additional delay period may be shortened at your request.

Talk to a Foreclosure Lawyer

Official HECM guidance and options often change. If your reverse mortgage is in default and you need help avoiding a foreclosure, consider talking to a foreclosure attorney to get the latest information.

A HUD-approved housing counselor can also provide you with information (for free).