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I’m sorry. Let me explain. My mother is 80 yrs old and took a reverse mortgage on her home when her husband passed away. The reverse mnortgage allowed her to stay in her home until she passes away. She was “allowed” to use the equity so to speak in her home to maintain living there. She has pulled all the allowable amount of money out of the mortgage and the lender is telling her she should move back home with her children.Due to the housing decline, she owes more than the house is valued at. The bank is telling her that until they sell her house, she will not be able to get another home loan. Others are telling her that she will not anyway, because her credit will be ruined. She is moving home only due to failing health and needs to be close to relatives but does not want to live with her children.With the “credit ruined” she thinks she will not even be able to put utilities in her name. That just does not sound right.

3 Thoughts on walked away from reverse mortgage and bank sold house…can I get another loan or is my credit ruined?
  1. Reply
    kemperk
    February 8, 2014 at 4:51 pm

    excuse me but something in this posting does not make sense.

    A reverse annuity mortgage is a monthly payment made to the
    property owner. When the 30 yrs of receiving $ expires, the
    prop owner or the note holder sells the house OR
    the note is paid back by having the house
    re-financed.

    Thus, are you saying, when you were offered 30 yrs
    of receiving money, you chose to say no, and walk away??

    I need more data. A bank can only sell the house when
    they have foreclosed through court.

    [if you can’t afford the mortage, and walked, how can you
    afford another mortgage? what am I missing?]

  2. Reply
    Lisa L
    February 8, 2014 at 5:40 pm

    Some people choose to take a lump sum. What percentage of equity you can get depends on your age. So, did you take a lump sum payment?

    Why on earth would you walk away? Why didn’t YOU sell the house? It will be a few years before you can buy. You are old enough to know better.

  3. Reply
    MRA
    February 8, 2014 at 5:57 pm

    There is a lot going on here. I think I would prefer to break down your sentences. I am not sure exactly what part you think doesn’t sound right.

    Your mother did a reverse mortgage and pulled all the money out. A condition of a reverse mortgage is that the home used as collateral must be the primary residence. However, your mother (after cashing out all the money), decided to move out of that home so that she could be nearer to her children. Since the home is no longer her primary residence, and she chose to walk away, the bank foreclosed on her. Now she wants to get another house and is worried she can’t because she was foreclosed on. She is also worried she can’t even get utilities in her name.

    Your mother has made some very bad decisions. While she has a right to move, and a right to terminate her loan, she did not act in good faith with the lender. She broke her word. She cashed out all the money. She walked away from her obligations, even when there was no mortgage to pay.

    Firstly, she should have signed a Deed in Lieu of Foreclosure (DILOF) instead of walking away and getting foreclosed on. DILOF is also not a great thing, but it is not as bad as a foreclosure on your record. This is an option wherein the senior works with the bank to give title of the home to the bank, so that the bank does not have to go through the expensive and time-consuming process of foreclosure. By doing a DILOF, the bank as the new owner would have the right to sell it on their own for just enough to cover the loan or market value, whichever is lower.

    Because she chose to walk away, she not only hurt the bank, but she also hurt her old neighbors, because now their property is worth less because of her decision to just “walk away” and get foreclosed. And now she has a foreclosure on her credit history as well. I know you said she had failing health, but she didn’t move because she had to (like to a nursing home) or because she couldn’t afford the payments (she didn’t have any mortgage payments), she chose to move to be nearer to her children, which is her right. The bank did not force her to cash out all the equity and it’s not the bank’s fault that she is upside down. Since she wants to continue to live on her own and even buy another house, she obviously is still pretty independent (failing health and all). But with a DILOF, she would have at least been responsible enough to work with the bank. What did she do with all the cash?

    It is true that she will not be able to get another FHA loan for as long as she has an FHA loan outstanding. You can only have one FHA loan at a time (and one primary residence), so until the house gets sold and the loan paid off, it remains open. She may be able to get other private-party hard-money type of loans, but that is unlikely because at 80 years old, I assume she has no job and without regular income (not social security), it is nearly impossible to get a loan.

    This is precisely why FHA guarantees reverse mortgages as a loan specifically for seniors because seniors typically can’t get a loan once they are retired. They have income, but not enough income to qualify for a loan or make monthly mortgage payments.

    In your question, you mix your past and present tenses: “Bank sold house” but “until they sell her house;” “lender is telling her she should move back home.” Not sure if it’s already been sold; if she has already been foreclosed; if she has already moved out. I bring this up because she may have had another option if she had wanted to move; perfectly legal and acceptable, and with the help of FHA. Before pulling all the cash out, while she still had equity in it, she could have sold the old home for a profit and used the net proceeds for a down payment to purchase another home closer to her children. She could have then bought the second home by taking out another reverse mortgage (FHA HECM for purchase) for the difference. Yes, you can buy a home using a reverse mortgage. Technically, you don’t have to sell your old home to purchase a new one with a reverse mortgage. But in her case, since she needs the down payment money and you can only have one FHA loan at a time, she could have bought the new home on condition that she sells the old one; and would have done it simultaneously so as to minimize her expenses of buying a home and getting a loan. Although purchasing a home through a reverse mortgage requires a big down payment, once the home is bought you do not have monthly mortgage payments. Many seniors use this type of reverse mortgage loan (FHA HECM for purchase) when they want to downsize or relocate nearer to their children.

    Utilities shouldn’t be a problem (even with a foreclosure). They will just make her put a big deposit as if it were her first time. Something like a pre-paid credit card. Actions have consequences.

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