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What is the Likelihood of a Foreclosure on a Reverse Mortgage?

I'm going to start with an opinion and then provide more information.  The likelihood of a foreclosure with a reverse mortgage is very small.  Can I back that statement up with facts.  The truth is I cannot find facts to back this up.  But I can offer a number of anecdotal statements.

The first is my own experience.  In over 7 years as a Reverse Mortgage Specialist originating hundreds of reverse mortgages, I am not aware of one of my clients being foreclosed.  I keep in touch with my clients at least twice a year.  I encourage them verbally and in writing to contact me anytime they have any questions about reverse mortgages.  Not once have I had anyone call me to say foreclosure was even threatened.  Would my regular mortgage counterparts be able to say the same thing?

I've had close relationships with dozens (if not, hundreds) of other reverse mortgage originators like myself over the years.  A discussion of foreclosure has occasionally come up and no one has ever mentioned a client having been foreclosed.

Prior to writing this page, I searched the Internet looking for the statistics of foreclosures of Reverse Mortgages.  I couldn't find any.  Not even one word talking about the actual situation of foreclosure of a reverse mortgage in a blog, news article, media website or a link to a hint of foreclosure.  I could find a ton of references of foreclosures in general.  One would think with the concern of foreclosures that the media would have a ton of articles about a heartless bank tossing a reverse mortgage holder out on the street.  (If anyone can find one please send it to me via my Contact page.)

There are a number of potential clients I have talked to over the years that chose not to do a reverse mortgage.  Instead, some of them did a refi with a regular mortgage company taking out extra cash in order to make the payments.  Others chose to avoid the high costs of a reverse mortgage and got an equity line so they could draw cash as they needed it.  Recently, I've talked to a number of these people who are concerned about losing their home because the extra cash has been used up or because they can no longer make the mortgage or equity line payments.  I have been able to help a couple but most now owe more than is available in a reverse mortgage.  There are a few who's phones have been disconnected and the letters are being returned.  I'm fearing the worst.

There is one case I can personally describe to you where a foreclosure action was started against a property with a Reverse Mortgage.  Note I was specific to identify the action against a property and not against a borrower.  Here is the story.

In 2004, I did a Reverse Mortgage for a disabled lady.  She had three daughters.  One (or maybe two) lived with her.  She died about a year later.  Seven months after she died, I was contacted by a conservator who had been hired to handle the estate. 

The heirs are supposed to notify lender when a Reverse Mortgage borrower dies.  The daughters did not.  In fact, at least one of them who had a Power of Attorney continued to draw money from the Reverse Mortgage line of credit.  The normal guideline on the death of the borrower is the heirs have 6 months to pay back the loan (usually by selling the home but that is not required).  They are usually given two 90 day extensions if they follow some simple rules.  

The heirs were not cooperating with the lender to pay back the loan.  They had already violated the rules by drawing funds after the death of the borrower and not notifying the lender within 6 months of the death of the borrower.  The lender was forced to file notice of foreclosure.  Since this was happening in early 2006, the conservator was able to place the home on the market for sale.  The lender allowed her to complete the sale.  Since home values had continued to go up from the time of the initiation of the reverse mortgage to the time of the sale, there was still equity that went to the heirs.  This is as close as I have come to having a foreclosure associated with a reverse mortgage.

Obviously, there must have been some foreclosures over the years of Reverse Mortgages.  (See my page that discusses when a Reverse Mortgage can be foreclosed.)  But since a Reverse Mortgage borrower is not making monthly payments, there aren't many ways a borrower can find themselves to be foreclosed upon.