HECM servicers are required by HUD to do an annual occupancy check on their HECM borrowers. We’ll explain what the occupancy check is and why it’s a big mistake to ignore it.
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What is the Purpose of an Occupancy Check?
A HECM reverse mortgage is unique home loan that enables homeowners 62 and older to convert home equity into cash without a mortgage payment and without giving up ownership of their homes.
No monthly payments are required as long as at least one borrower lives in the home and pays the property taxes, homeowner’s insurance and HOA dues (if applicable).
So, why do mortgage companies do occupancy checks on HECM borrowers? The answer is simple: HUD requires it because you must live in your home to remain in good standing with your HECM reverse mortgage.
If you fail to live in your home as required by HUD, you risk triggering a maturity event that could make the loan balance due and payable in full.
Obviously, ignoring the check could have serious consequences. Fortunately, it’s very easy to comply with and remain in good standing.
What is a Mortgage Servicer?
A mortgage servicer is a company that handles long-term customer service for a reverse mortgage once it’s completed. The servicer handles inquiries and requests for funds, monitors property charge payments, distributes LESA payments, and facilitates the settling of the loan balance once it becomes due and payable.
How Servicers Complete the Occupancy Check
HUD requires servicers to complete the annual verification of occupancy in one of two ways:
- Written confirmation – The servicer will send out a form every year for you to fill out and return. It’s important to return this form promptly (usually within 30 days) or the servicer may assume you’re no longer living in the home. This could trigger a maturity event and make the reverse mortgage balance due and payable in full.
- Verbal confirmation – HUD revised it’s requirements in late 2023 to allow servicers to do verbal checks. You can now confirm your occupancy verbally over the phone without having to fill out and send back a form.
Again, the annual occupancy check is a very important part of your obligations under the HECM program. If you fail to confirm occupancy, it could trigger a maturity event that makes the reverse mortgage due and payable.
A Few Additional Notes
Though the HECM program requires you to live in your home, you don’t have to live in it the entire year. You’ll satisfy the occupancy requirements as long as you live in your home for the majority of the year.
It’s OK to take long trips or live somewhere warm for the winter. Just make sure your home remains your primary residence and that you live in it for the majority of the year.
It’s also OK to be away from your home for up to twelve months for medical reasons. Just make sure to let your servicer know if this comes up.
Why do banks do occupancy checks?
Occupancy is a key risk factor for mortgage lenders. For example, investment properties are riskier from a lending standpoint than an owner-occupied property because borrowers are more likely to let the investment property go than the home they live in if they run into financial problems. Banks occasionally do occupancy checks to make sure that borrowers are living up to the occupancy requirements of a loan agreement.
Why do mortgage companies do occupancy checks?
Occupancy is a key risk factor for mortgage lenders. For example, investment properties are riskier from a lending standpoint than an owner-occupied property because borrowers are more likely to let the investment property go than the home they live in if they run into financial problems. Banks occasionally do occupancy checks to make sure that borrowers are living up to the occupancy requirements of a loan agreement.
