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Maturity event

What is a HECM reverse mortgage maturity event?A maturity event makes the HECM balance due and payable in full. Maturity events include (but are not limited to) the death of the last surviving spouse or non-borrowing spouse, changes in title, failure to pay the required property charges, permanently moving out of the home, or letting the home fall into extreme disrepair.

Once a maturity event is triggered, the servicer is required by HUD to order a real estate appraisal and notify the heirs, estate, or homeowner (if the homeowner is still living in the home) that they have three options to pay the loan balance in full:

  1. Pay off the reverse mortgage balance and keep the home. The balance can be repaid by either refinancing or paying off the balance with other assets.
  2. Sell the property for at least 95% of the appraised value. Once the sale is complete, the loan balance is paid off and the remaining equity goes to the homeowner (if still living) or the heirs/estate.
  3. Provide the lender with a Deed in Lieu of Foreclosure. The lender will sell the property, pay off the reverse mortgage, and any remaining equity goes to the heirs.

If the loan balance isn’t repaid in response to a Due and Payable Notice, the lender is required by HUD to begin foreclosure proceedings.

Though the term foreclosure is loaded with negative connotations, it simply refers to the sale of a property to repay a mortgage. Foreclosure is a normal part of settling a reverse mortgage. It doesn’t imply that anything is wrong or the homeowner fell on hard times and is losing the home. Foreclosure is a normal part of settling up a reverse mortgage after a maturity event. The most common maturity event is the passing of the last borrower or non borrowing spouse.

The HECM reverse mortgage is a non-recourse loan, which means the most that will have to be repaid is the value of the home. If the home isn’t worth enough to settle the entire balance, FHA will cover the shortage out of the Mutual Mortgage Insurance Fund.

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