With a regular, forward mortgage, the borrower gets a lump sum and makes monthly payments covering principal and interest to repay the loan. On the other hand, with a reverse mortgage, which the Federal Housing Administration (FHA) usually insures, known as a Home Equity Conversion Mortgage (HECM), the borrower gets payments from the lender, which become the loan. The payments to the borrower may be in the form of a lump sum (subject to some limitations), monthly payments, a line of credit, or a combination of monthly installments and a line of credit.
Borrowers usually don't have to repay a reverse mortgage until they die, move, or sell the home. But the bank can also call the loan due if the borrower violates the terms of the mortgage contract, like by not paying taxes or insurance, or failing to keep the property in good condition. The bank can then foreclose if the borrower doesn't correct the problem or pay the loan back in full.
These kinds of defaults, especially tax and insurance shortfalls, can often be resolved if brought to the borrower's attention early in the process so the borrower has sufficient time to deal with the problem. Yet, reverse mortgages were previously excluded from New York's law requiring a 90-day preforeclosure notice, which would notify the borrower about the issue, and a mandatory settlement conference, which would give the borrower the opportunity to work out a resolution with the bank. Now, thanks to legislation that went into effect in 2018, reverse mortgage borrowers facing a foreclosure get both a 90-day notice and the right to a settlement conference.
For both forward mortgages and reverse mortgages, New York law requires the lender or servicer to send a notice to the borrower 90 days before starting a foreclosure. The notice must provide, among other things, information about how to cure the default and a list of government-approved housing counseling agencies located near the borrower. (N.Y. Real Prop. Law § 1304).
If the mortgage is a reverse mortgage, the 90-day notice must explain the type of default that triggered the foreclosure, like:
Additionally, if the default is due to the borrower's failure to pay property taxes, water and sewer charges, or to have homeowners' insurance, the letter must say that the borrower can cure (resolve) the alleged default by repaying the servicer for any amounts it paid.
The notice also must include information about:
If the borrower doesn't resolve the matter within 90 days of the notice date, the servicer may begin a foreclosure (sooner if the borrower doesn't live in the home as a primary residence).
For foreclosure actions involving owner-occupied properties, New York law requires the court to hold a mandatory settlement conference within 60 days after the servicer files proof with the court that the borrower received the complaint and summons, the first official step in a New York foreclosure. (N.Y. Civ. Prac. Laws & Rules, Rule 3408).
When it comes to reverse mortgages, the conference is required when the foreclosure is triggered by anything other than the death of the last surviving borrower, like a tax or insurance delinquency. Even if the foreclosure is due to the last surviving borrower's death, the court must hold the conference if:
At the settlement conference, the lender and homeowner attempt to reach a mutually agreeable way to avoid foreclosure. For more information on settlement conferences in New York, go to the New York State Unified Court System website.
Hiring a lawyer to represent you at a settlement conference or during a reverse mortgage foreclosure is often a good idea. A lawyer can help you negotiate a way to avoid foreclosure, protect your legal rights in the foreclosure process, and advise you about potential defenses to the foreclosure. You might also consider consulting with a HUD-approved housing counselor to learn more about foreclosure avoidance options.