For those of you with primary mortgages, you are probably already familiar with the idea of an Acceleration Clause. For reverse mortgage borrowers, however, the inclusion of such a clause in your loan contract might come as something of a surprise.
In a nutshell, an acceleration clause is just as it sounds: it is a clause that stipulates conditions under which the repayment of your mortgage will be accelerated. If certain terms are breached, in other words, you might suddenly be required to repay your mortgage. Forget about the number of years left until your loan matures- the entire balance is now due in full, payable to the lender.
Reverse mortgages are special, in that they don’t usually have specific time durations. Therefore, the acceleration clause serves a very important function, since without it, the loan would never mature! The specific conditions that would trigger repayment are typically as follows: death of the last remaining borrower, vacating of the residence by the last remaining borrower, failure to maintain the property, and/or failure to pay homeowners insurance premiums and property taxes.
Once any of these conditions is reached, the loan immediately comes due. In fact, the FHA is now putting more pressure on lenders to be more aggressive on enforcing acceleration clauses for borrowers that fall into the latter category. As for the passing away or moving out of the borrower, lenders are slightly more lenient. To be sure, upon such a an event, the loan immediately becomes due. As I explained in an earlier post, however, the borrowers’ heirs can petition for a 1-year extension in order to plan for the sale of the property and/or repayment of the loan.
In short, don’t panic when you read the acceleration clause in your reverse mortgage contract. They are a standard part of the process, and certainly not a scam. Of course, you should still scrutinize the clause in order to make sure that it doesn’t contain any conditions beyond those that I listed above. Since all lenders that participate in the HECM reverse mortgage program are subject to FHA oversight, however, it seems unlikely that they would attempt anything deceptive.
Most importantly, make sure you fully understand the clause. It should be obvious that the loan becomes due when the primary borrower dies. What is less obvious, though, is that the lender can force repayment if the borrower moves out, and/or stops maintaining the property and paying taxes/insurance. Before signing the contract, then, it’s vital that you understand this.
4 Responses to “Reverse Mortgage Acceleration Clause”
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July 12th, 2010 at 5:42 am
I was under the impression that the lenders give the heirs six months automatically and that they will always give an additional six months (if requested,) and in many cases lately (I have a borrower who passed away and I am in contact with her children) they will give even more time (my borrower passed away almost two years ago, and the lender is working with the children as they try to sell)
July 22nd, 2010 at 10:35 am
Hello.
My mother has a reverse mortgage through Financial Freedom and recently passed away. Her mortgage is upside down because she borrowed the allowed maximum and her property appraised at less than the amount she borrowed. Our family opted to do a Deed in Lieu of Foreclosure and now we are waiting for the law firm handling the documents that are to be signed by our family to get some type of approval for fees from Fannie Mae. We’ve been waiting about two weeks now and can’t seem to get anyone involved to tell us when the paperwork will be completed and mailed to us for signing so we can move on with life and have the deed to her home in the hands of the investor, who we’re told is Fannie Mae. How can we speed things up so that our family no longer has to maintain the property and pay taxes and insurance? We started the process in May 2010 and we can’t understand the delay with Fannie Mae and what is taking so long. We can’t get a straight answer when we call the servicer, Financial Freedom, or the attorney’s office, whose handled the title search and drawing up the paperwork. I’m about to phone Fannie Mae myself, but of course the law firm says there is no number for borrowers or their families to call!
Any help that you can provide is much appreciated.
August 10th, 2010 at 9:16 pm
Given that the mortgage balance is worth more than the home, it would seem that your efforts are essentially in vain. If I understand the situation correction, it is only the deceased borrower whos name was on the loan, and as a relative/heir, you don’t have any obligation to work with the lender to sell the property, especially since there is nothing to be gained (in the form of leftover equity, for example) from doing so. At this point, it might just be easiest to walk away.
August 26th, 2010 at 12:36 am
Yes, but if the family has already started the DIL process, wouldn’t it be best to continue with that if possible, instead of walking away and going through a regular foreclosure, which could take years to get through the court system?