What Happens If I Default On A Reverse Mortgage?
Defaulting on a reverse mortgage sets the stage for several problems. Here’s can happen if you default on a reverse mortgage for any reason.
No More Funding
The first thing that will happen after the default is that you are immediately no longer able to receive funds from the reverse mortgage arrangement. This means if you were drawing off a line of credit, that credit line is shut down immediately. In situations where the agreement was arranged to issue monthly payments, those payments stop at once. This action effectively helps to protect the lender from incurring any further loss while legal action is taken.
Legal Action Will Commence
Next, the lender will seek a judgment of default against you. Once the default is approved by the court of jurisdiction, your home will be sold to settle the outstanding debt. Depending on applicable laws in your area, you may have to reimburse the lender for all legal expenses as well as pay off the balance on your account. Usually, whatever is left over after all debts related to the default on a reverse mortgage is forwarded to the debtor.
Your Credit Suffers
As with any type of debt, failure to pay off any proceeds you’ve received from the reverse mortgage will result in unfavorable reports to the three main credit reporting agencies. Since those reports are viewed by anyone who is thinking of providing you with credit, these bad reports can cause you to not qualify for a loan, or be unable to get a credit card at the best rate of interest.
One way to avoid losing your home when you default on a reverse mortgage is to find some other lender that is willing to settle the debt for you. Depending on the status of your credit, you may be able to arrange a traditional mortgage on the home that will pay off the total due on your reverse mortgage. You may also be able to draw on private sources for funding, such as relatives. If you cannot come up with some way to settle the balance, then the default will proceed, and you will shortly be looking for new living arrangements.
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