Reverse Mortgages in California Probate – Your Options after death

INTRODUCTION

I receive calls or emails almost daily asking how houses with reverse mortgages are handled after death.  A key take-away, though perhaps a slight over simplification, is to say that reverse mortgages are just mortgages.  Thus the mortgage has no bearing on what procedure is used after death to clear title to an asset. Trust, probate, transfer on asset deed, joint tenancy and any other transfer option all work with a reverse mortgage… but that reverse mortgage does need to be dealt with right away after death!

BACKGROUND

In the beginning (1960′s and 1970′s) reverse mortgages often had draconian repercussions after death.  The house simply went to the bank.  I have heard stories of people receiving small payments and then dying (prematurely) creating a windfall for the bank.  Now days, however, a reverse mortgage is just a special kind of mortgage. It’s available to individuals 62 and older for the purpose of creating more retirement income for the individuals. The bank has a claim against the house, like any other mortgage, that kicks in after death. There is some interesting historical information on the AAG website here.

OPTIONS

A reverse mortgage can be taken out by the trustee of a trust in most cases or by an individual. If it is taken out by a trust the title to the home should remain in the name of the trust. If it is taken out by an individual they should consider transferring the title of the home to a trust to avoid probate after death.  Other options that might work, to avoid probate after death, include a transfer on death deed and a joint tenancy deed. Each option has different pros and cons so should be reviewed with an experienced estate planning attorney.

AFTER DEATH

If a home, with a reverse mortgage, is not in a trust after death then some sort of probate court procedure will be needed to clear title.  The procedure to use depends on the gross value of the property.  I should point out it is not the net value as many people believe.  If the gross value is less than $166,250 then a small estate procedure may work. On the other hand, if the gross fair market value is more than $166,250 then a full probate is required in California.

There are other issues to consider with a reverse mortgage that are a little different than a regular mortgage.  Most notably the banks are quick to foreclose when there is a reverse mortgage. You can generally ask for a delay in the foreclosure but that has to be done in a timely fashion (generally within 90 days).  I believe most delays are good for 90 days and I have heard that those requests can continue for up to one year. You should definitely put those in writing and keep a record of all communications with the reverse mortgage company.

One thing to remember is you should notify them of the death. On the one hand it does get the clock ticking but they are going to find out one way or the other so might as well be on the up and up and start your relationship with the reverse mortgage company on the right foot!

CONCLUSION

Holding a property with a reverse mortgage creates no differences after death in terms of clearing title. That is, a property with (or without) a reverse mortgage has to go through probate if it’s not in a trust.  We handle a large number of probate cases with reverse mortgages so please contact us to discuss your situation.