I received a call the other day asking how houses with reverse mortgages are handled after death. Reverse mortgages are just mortgages. Thus the mortgage has no bearing on what procedure is used after death to clear title to an asset.
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.
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.
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. If the value is less than $150,000 then a small estate procedure may work. If the gross fair market value is more than $150,000 then a full probate is required.
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).
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.