Filing Bankruptcy on a Reverse Mortgage - Westgate Law

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Filing Bankruptcy on a Reverse Mortgage

In recent years, the reverse mortgage is becoming a popular option for seniors who have limited financial resources to support their retirement. Many feel their savings are an inadequate nest egg when it comes to living out the remainder of their life in comfort and turn instead to the equity they have in their home. This is the perfect solution, until they pass away and leave the home to their heirs.

When a home with a reverse mortgage loan is inherited, many heirs will find that they have a problem on their hands. Many seniors will use most of the equity they originally had in their home and the lender will want the balance. This falls on the shoulders of the individual or individuals who inherit the property.

The reverse mortgage is great for the current owner of the property. It allows them to stay in their home without having to pay the mortgage. The loan is paid back only after the owner dies or if the property is sold. The lender for the reverse mortgage is taking a risk that the property value could decrease or that the owner will live longer than expected.

When the owner dies and the heirs want to keep the property, immediate action is necessary. Unless the owner who passed away has a spouse that is still living that is also a co-borrower on the loan AND is living in the house, heirs have 6 to 12 months to complete one of the following:

  1. Refinance the property.
  2. Pay off the current loan.
  3. Sell the property.

In this particular situation, filing bankruptcy is not a helpful option. It will not allow an heir to keep the house and eliminate the reverse mortgage balance. Bankruptcy will not wipe out a valid lien against the property held by a lender. Act quickly. The lender is not interested in waiting to recover their investment.

If you have questions regarding southern California bankruptcy and how it applies to your current financial difficulties, contact the experts at Westgate Law.

About the Author

Justin Harelik

Justin has a singular goal: to get people out of financial distress and move them to financial stability and prosperity. He does this by combining 15 years of in-depth experience in bankruptcy, credit management, debt negotiation and student loan modifications, and he does it with both English and Spanish-speaking clients.

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