A reverse mortgage offers older homeowners a chance to remain in their homes without making monthly mortgage payments. Even without the need for monthly payments, the lender may still foreclose. This is possible if the specific requirements of the loan terms aren't met. The homeowner can stop foreclosure proceedings by signing a deed in lieu of foreclosure. This transfers the deed (or ownership) of the home to the lender. The lender accepts the property as is and is free to sell it to recoup its losses.

How Does a Reverse Mortgage Work? 

Available to homeowners age 62 or older, a reverse mortgage is a way for homeowners to borrow money and guarantee the loan with their home. The most common type of reverse mortgage is the 澳洲幸运5官方开奖结果体彩网:home equity conversio💙n mortgage (HECM), which is insured by the 澳洲ℱ幸运5官方开奖结果体꧅彩网:Federal Housing Administration (FHA) and subject to FHA limits. Borrowers receive a loan amount based on how much 澳洲幸运5官方开奖结果体彩网:home equity they have, and they can use those proceeds however they wish, including to pay off any current mortgage. 

While borrowers don’t have to make monthly payments on the loan, they must adhere to the following requirements to avoid 澳洲幸运5官方开奖结果体彩网:defaulting on the reverse mortgage and triggering 澳洲幸运5官方开奖结果体彩网:foreclosure proceedings:

• Pay all 澳洲幸运5官方开奖结果体彩网:property taxes, 澳洲幸运5官方开奖结果体彩网:homeowners insurance, and related fees (such as those for 澳洲幸运5官方开奖结果体彩网:hom🅷eowners or condominium associations) on time. 
• Keep the home in 澳洲幸运5官方开奖结果体彩网:good living condition. 
• Use the home as the borrower’s 澳洲幸运5官方开奖结果体彩网:primary residence (living there for 澳洲幸运5官方开奖结果体彩网:most of the year). 
  

How ܫDoes a Deed in Lieu of Foreclosure Stop Foreclosure Proceedings? 

If the borrower fails to comply with these requirements, the reverse mortgage servicer can start foreclosure proceedings. They must notify the borrower that the loan is in default and is now payable. The borrower can 澳洲幸运5官方开奖结果体彩网:stop foreclosure proceedings by complying with the unmet requirement, such as paying overdue taxes or certifying that the home is their primary residence. 

However, if they are unable to comply with the requirements to stop foreclosure, then borrowers can willingly sign a 澳洲幸运5官方开奖结果体彩网:deed in lieu of foreclosure to resolve the matter.

Pros and Cons of a Deed in Lieu of Foreclosure

Pros Explained

• All foreclosure proceedings are stopped. 
• The borrower is free of any further obligations or recourse on the reverse mortgage. 
• If the borrower is responsible for any deficiency (the difference between the value of the home and the mortgage balance), your lender may waive it. 
• The matter can be resolved without lengthy delays or going to court. 
• A deed in lieu of foreclosure has less of an impact on the borrower’s credit history (four years) than a foreclosure would (seven years).
• You could receive relocation expenses from private programs. This is commonly referred to as cash-for-keys.

Cons Explained

• The borrower will lose the home and have to relocate. 
• The borrower will lose any remaining equity in the home. 
• If the amount is more than $600 and the lender waives the deficiency, the 澳洲幸运5官方开奖结果体彩网:Internal Revenue Service (IRS) will consider it income. This means the borrower must pay taxes on it.
• Signing a deed in lieu of foreclosure isn't as bad as foreclosure but will impact the borrower’s credit history.
• The lender has the right to reject a deed in lieu of foreclosure. 

What Are t🔯he A💖lternatives to a Deed in Lieu of Foreclosure?

Although there are pros and cons to using a deed in lieu of foreclosure to stop foreclosure proceedings, it may not be the best choice. Here are some other options to consider:

• Refinance the reverse mortgage: If you have enough home equity, you may be able to 澳洲幸运5官方开奖结果体彩网:refinance the existing reverse mortgage for a new one that pays off the current reverse mortgage. 
  
• Enter a 澳洲幸运5官方开奖结果体彩网:repayment plan: If you don’t have the money to pay any overdue taxes or other expenses to comply with the 澳洲幸运5官方开奖结果体彩网:reverse mortgage requirements, you may be able to enter a repayment plan to pay back the loan service that pays those expenses for you. This amount could be spread out over a term of up to five years. 
  
• Pay off the home: If you’re able to secure funding from other assets or from an heir, you can pay off the reverse mortgage. 
  
• Sell the home: Selling the home yourself means that you would be able to keep any excess proceeds once the reverse mortgage is paid off. 
  

The Bottom Line

Facing foreclosure proceedings on your reverse mortgage can be difficult and scary. Using a deed in lieu of foreclosure could stop the foreclosure, freeing you from all financial obligations with the reverse mortgage, but also could leave you without a home. It’s important to review all your options to stop a foreclosure on your reverse mortgage before signing a deed in lieu of foreclosure.