Intricacies of a Reverse Mortgage

With a standard mortgage, the borrower is personally responsible for the note.  In the case of a foreclosure, the bank will foreclose on the property and sell it in order to recoup the amount still due.  If the bank sells the house for less than the amount due on the loan, the bank can file for a deficiency judgment against the borrower for the money that is owed.  Although this is rare, it does happen.  

With a reverse mortgage, the lender can only foreclose on the house.  They cannot pursue the borrower (or an heir) for any outstanding loan amount because a reverse mortgage is a non-recourse loan.  Even if the house is worth less than the mortgage amount, the lender cannot go after the borrower or the borrower’s estate for the remainder of the money.  Reverse mortgages are good for seniors who need the cash-flow and are comfortable with their heirs not inheriting as much equity in the house. 

These questions often come up at closings, and reverse mortgage lenders need a closing attorney that can confidently answer those questions so the process can move forward.